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WoodMac flags better structural support for zinc in 2019

Metal News - Published on Tue, 11 Dec 2018

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Mining Journal reported that UK based Woodmac said that steady outflows of echan On the London Metals Exchange, stocks are at their lowest levels since January 2008, at 119,000 tonnes. On the Shanghai Futures Exchange, stocks slipped to less than 27,000 tonne and stocks in Chinese bonded warehouses stand at 34,000 tonne. Latest data from China's National Bureau of Statistics showed Chinese refined production was down 3.7% for the year as a whole, while evidence continued to emerge that Chinese smelters were struggling to comply more stringent environmental regulations, WoodMac said in its most recent ‘Metals & Mining Snapshot'.

Smelter production during the September quarter was well below expectations, the group said, compounding the impact of the Vladikavkaz smelter closure in Russia. Despite increased concentrate availability, rest-of-world smelter utilisation rates slid from 92% in the June quarter to just 84% in the third quarter.

WoodMac said that "The risk is that not only will Chinese smelters find it challenging to increase utilisation rates in 2019, but so will smelters in other parts of the world. (This) represents a significant upside risk to both our price and treatment charge outlook for 2019 and 2020.”

The zinc price has fallen 13% in the past year to about USD 1.217/lb. Analysts have been flagging an emerging supply deficit for years, and it finally seems likely to appear in a meaningful sense in 2019.

WoodMac also flagged fewer Chinese steel cutbacks this winter in response to stricter federal government-mandated environmental policies. Cutbacks to curb smog would be less severe than initially anticipated, the analyst said.

According to the latest official data out of China, national steel production increased 7% year-on-year in October, to its highest monthly rate this year.

While the production curtailments have now started, WoodMac's primary research in Tangshan suggested the scale had been less than implied by earlier government announcements. This could be owing to steel plant investment in environmental control equipment, payback for previous compliance, or more flexible supply-side management focused on sinter lines.

WoodMac saw steel mill margin compression becoming more widespread since mid-November.

WoodMac said that "This will hit high-grade sinter [iron ore] fines, concentrates and direct charge ores particularly hard. At the other end of the spectrum low-grade ore is moving back in favor with most suppliers.”

The benchmark iron ore price currently stands at about USD 66.76 per tonne, having recently given back gains on concern about a slowing Chinese economy. It is down about 2.7% year to date.

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Posted By : Nanda Koijam on Tue, 11 Dec 2018
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