Engineering & Mining Journal

JUN 2012

Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr

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BASE METALS Graph 1—London Metal Exchange three-months copper price trends, 2007-2012. (Source: LME) Graph 2—LME warehouse copper stock levels, May 2011 - May 2012. (Source: LME) quarter of the year. During the period, Shanghai stocks more than doubled to some 250,000 mt. More likely, the com- pany surmised, was the presence of one dominant stock-holder on the LME. Turning to copper stocks, Graph 2 shows that LME copper stocks remained fairly constant between 460,000 and 480,000 mt between May and October 2011, before starting a sharp reduction to stand at around 250,000 mt by the beginning of May this year. However, as IntierraRMG points out, LME stocks are by no means the whole picture. Add in Shanghai stocks of some 250,000 mt, plus those held by Comex in the United States (around 75,000 mt at the begin- ning of May), and the overall position is more of global exchange stocks remain- ing between 550,000 and 700,000 mt over much of the past year. In fact, what appears to have happened is a transfer of stocks from the LME warehouses to Shanghai. Zinc, Galvanizing the Market LME three-months zinc prices have maintained a fairly steady course over the past six months, trading at $2,000/mt plus-or-minus 10%. The relative stability has come, however, after a fairly torrid time for zinc producers, who saw their per-ton revenues fall from a high of more than $4,000/mt in mid-2007 to barely above $1,000 a year or so later (see Graph 3). Since then, a return to $2,500 was followed by a period of considerable volatility before the price fluctuations appear to have calmed somewhat. Not that that is much consolation to produc- ers, with zinc having been the worst-per- forming metal on the LME since 2008. With zinc having been in oversupply for the past five years, it is surprising at first sight to see the price as high as it is. However, as a number of analysts have pointed out, even at $2,000/mt the price is barely adequate to cover mining costs in more than a few cases, with income contributions from co-products helping to balance the books. In addition, the annual surplus has been falling as demand has increased, although the International Lead and Zinc Study Group (ILZSG) is still predicting that supply will again outstrip demand this year. Galvanizing takes over half of all zinc consumption, so any upturn in steel demand has the potential to stimulate zinc usage. And, with China holding pole position in terms of steel production, all eyes remain firmly fixed on that market for signs of renewed buoyancy. In the mean time, stocks worldwide remain uncomfortably high. As Graph 4 shows, the fall in LME stocks that occurred in the second half of 2011 did little to stem the seemingly inexorable rise that began in late 2007 and has con- tinued almost unabated since. By April of this year, the LME warehouses held over 900,000 mt of zinc, with metal held at the Shanghai Futures Exchange increas- Graph 3—LME three-months zinc price trends, 2007-2012. (Source: LME) www.e-mj.com Graph 4—LME warehouse zinc stock levels, 2007-2012. (Source: LME) JUNE 2012 • E&MJ; 89

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