Friday, October 28, 2016
Zinc market continues to tighten
The rapid change in the price of zinc over the past nine months is due to a drop in supply.
While demand for zinc has grown slowly but consistently at about 2% per year, monthly zinc production fell to a nine-year low in February.
The world produces about 14 million tons of zinc per year... But about 1 million tons of zinc production left the market last year due to mine closures.
Mines like Brunswick (Canada), Lisheen (Ireland), and Century (Australia) all shut down. Another large producer, Red Dog Alaska, only has about 10 years of life remaining.
And it will take time to start new mines.
This year, the world will consume about 500,000 more tons of zinc than it will produce. Next year, the deficit will grow even larger. If it weren't for a giant backlog of supply – about 2 million tons in inventory worldwide – the price of zinc would be soaring even higher today.
By 2017, that inventory will get tight. The price of zinc has already started to move higher... We could see a full-blown frenzy by this time next year.
This is why I own Nevsun Resources. The company reported earnings yesterday and as anticipated the transition from majority copper production to new zinc production led to a down quarter from a sales perspective.
This is to be expected when starting up a new process unit. I have confidence in the management and its ability to get things lined out
In the meantime the company paid out its normal dividend and recent news from the company's Timok project indicates that the decision to purchase was the correct one.