Zinc Surplus to Narrow as Earthquake Forces Japan’s Smelters To Cut Output
The global zinc surplus may decline after an earthquake and tsunami reduced production and sales at smelters in Japan, turning the world’s third-largest economy into a net importer in April as purchases soared to a record.
Toho Zinc Co., the third-biggest producer, will sell 9.4 percent less this fiscal year, Kunio Yamamiya, representative senior managing director, said in an interview. The company joins Mitsui Mining & Smelting Co., the top maker, in reducing output of the metal used to galvanize steel for the car industry.
The drop in supply may support prices of zinc, which are trading near their highest level in a month. Goldman Sachs Group Inc. recommended last week that investors buy the metal, predicting demand will outpace supply next year. Zinc is the worst-performing metal on the Standard & Poor’s GSCI Index of 24 raw materials this year, declining 8 percent as the International Lead & Zinc Study Group forecasts a surplus.
“Japan’s earthquake will eventually help reduce a surplus in world zinc supplies and may boost the price as the country will need more galvanized steel to rebuild,” said Hwang Il Doo, a senior trader at Korea Exchange Bank Futures Co. in Seoul.
Zinc will average $2,475 a metric ton in 2011 and $2,500 in 2012, Michael Widmer, head of metals research at Bank of America Merrill Lynch in London, forecast on May 23. Three-month delivery metal added 0.2 percent at $2,277.50 a ton at 12:17 p.m. in on the London Metal Exchange.
“Demand growth is outpacing supply growth sufficiently to tip the market into deficit in 2012,” Goldman said in a May 24 report. “China is a growing net importer of zinc raw materials, setting up for sizable upside for the metal even before important mine closures are set to take place in 2013-2015.”
World zinc supply will outpace demand this year by 161,000 tons compared with a surplus of 264,000 tons last year, according to the International Lead & Zinc Study Group. Last year was the fourth consecutive annual surplus.
“Given the excess in zinc smelting capacity globally, I believe that the impact would be short lived,” Gayle Berry, an analyst at Barclays Capital in London, said in an e-mailed reply to questions from Bloomberg. “The concentrate would most likely be redirected to other smelters and processed elsewhere.”
The March 11 temblor and tsunami damaged factories, including metal smelters and refineries, and knocked out power plants. Toho Zinc said April 12 that it partly restarted operations at its Annaka smelter, while its Onahama smelter may resume production in early June. After the quake, it declared force majeure on raw-material shipments to Onahama.
Toho Zinc will sell 115,000 tons of zinc in the year started from April 1, compared with 127,000 tons in the previous year, Yamamiya said May 27.
Mitsui Mining said April 11 that it will cut output by 16 percent to 92,900 tons in the six months to Sept. 30 from a year ago, and restart its Hachinohe smelter with a capacity of 112,000 tons in early June.
Toho Zinc’s Annaka smelter in Gunma prefecture, north of Tokyo, has an annual capacity of 139,200 tons of zinc, according to spokesman Yasuo Motoishi. The company plans to shut the Annaka smelter for a month in August for regular maintenance.
“Following the disaster, we may see a production loss of at least 12,000 tons of zinc ingots,” Yamamiya said. The Annaka smelter is operating at 30 percent of normal capacity because of limited supply of processed metal from its Onahama plant in Fukushima prefecture, he said.
Toho Zinc will increase the raw-material procurement rate from its mines to 73 percent from 35 percent as its unit, CBH Resources Ltd., plans to start concentrate production from July 2012 at the Rasp mine in New South Wales, Australia, he said.
The company also plans to raise concentrate output to 85,000 tons this year at its Endeavor mine in the same Australian state from 68,000 tons last year, he said. Toho Zinc imports 240,000 tons of zinc concentrate a year.
Japan’s zinc ingot imports reached an all-time high of 31,376 tons in April, compared with 4,053 tons a year earlier, trade data from the finance ministry show. In March, imports totaled 3,963 tons versus 578 tons a year earlier. Australia and South Korea were major suppliers to the country in April.
The country’s exports fell 50 percent to 4,190 tons in April from a year earlier after dropping 35 percent to 7,444 tons in March. In 2010, Japan imported 31,856 tons, while exporting 97,745 tons.
Toho Zinc, the country’s top lead producer, plans to sell 92,000 tons this fiscal year, compared with 94,000 tons a year earlier, Yamamiya said. The company is running its Chigirishima lead smelter in Hiroshima at full capacity as demand from nuclear power plants and battery makers has been increasing after the quake, he said.
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