Zinc Metal Market
Zinc prices showed great volatility during 1997, despite the steady reduction in London Metals Exchange (LME) stocks.

The LME cash price for zinc ranged from a high of US$1,725 per tonne in September 1997 to a low of US$988 per tonne in late June 1998. Pasminco’s average realised base LME zinc price for the year was US$1,192, up 6% from the previous year’s US$1,124.

Despite the zinc market being slightly in surplus at the beginning of the first half, zinc reached its highest cash price for many years (US$1,725) in September 1997 before tumbling to an average of US$1,060 for the second half.

With the strengthening zinc price and record Chinese exports during the first half, LME stocks rose from 424,000 tonnes to peak at 495,000 tonnes. Once the zinc price collapsed, stocks decreased steadily from December 1997. On the back of strong European demand and slower Chinese exports, the average draw-down at the end of the period was more than 1,000 tonnes per day. At year end, LME stocks totalled 367,000 tonnes, an overall decrease for the year of 57,000 tonnes or 13%.

Year-end LME zinc stocks are estimated to represent 6.6 weeks of consumption when combined with approximate consumer and producer stocks.

The zinc demand/supply equation is expected to be generally balanced during 1998/9. No new supply capacity will become available while much lower metal exports are expected from the People’s Republic of China. Continuing strength in European and North American consumption will be offset by slower Asian demand.

Lead Metal Market
Average London Metal Exchange (LME) stocks of lead for 1997/8 remained at the previous year’s level of 112,000 tonnes.

At year end, LME lead stocks combined with approximate consumer and producer stocks are estimated to represent just above four weeks’ consumption.

Despite historically low stocks, Pasminco’s average realised LME base lead price for the year was US$562, down 22% from the previous year’s US$724.

Western world lead production grew by almost 4% in 1997/8, but is expected to reduce gradually to around 1% during the next few years. Primary lead production accounted for most of the growth in 1997/8, due to rising concentrate supplies and some smelter capacity upgrades and de-bottlenecking. Growth in secondary lead production especially in Europe and North America was restricted by the tight supply of scrap. Western world lead consumption is forecast to grow at 1.4% (70,000 tonnes) p.a. over the next five years, with the Americas showing the strongest growth rates. Estimates of Asian demand growth during the
next 12 months range from 1.4% to negative 3%.

 

Regional impacts on Pasminco metal sales
Pasminco exports to more than 45 countries around the world. Core markets are in Europe and the Asia Pacific Rim.

In the European zinc metal market, demand and premiums strengthened steadily throughout 1997/8. Increasing demand from the general and continuous galvanising sectors was the key driver.

In Pasminco’s core Asian markets, the economic slowdown saw a decrease in demand for all commodities in the main affected countries (Indonesia, Malaysia, South Korea and Thailand). For Pasminco, decreased demand in these markets was largely offset by the strong demand in North Asian countries such as Taiwan and Hong Kong/China, West Asian countries such as Bangladesh and India, and South Africa.

Having the advantage of operations in both the southern and northern hemispheres, Pasminco can adjust its sales effort to maximise returns. During the report period, the mix of European and Asian sales was fine-tuned; but the company continued to ship zinc metal from Europe into Asia throughout the year. The Asian downturn had the greatest impact on Pasminco markets catering to domestic demand in the weakened economies, such as general galvanising in the case of zinc and domestic battery supply in the case of lead. In contrast, export-oriented areas such as diecasting in some cases actually increased consumption of Pasminco zinc. In aggregate, Pasminco retained most of its share of the zinc and lead metal import market in the Asian region.

Concentrates Markets
Concentrate treatment charges moved in favour of smelters during the report period, particularly in the case of lead concentrate.

Approximately 61% of Pasminco’s zinc concentrate sales in 1997/8 were to the Group’s own smelters, up from 52% in the previous year. Export sales were reduced in line with lower production from Pasminco mines and increased demand from Cockle Creek after the closure of the Woodlawn mine. Most zinc concentrate export sales continued to be directed to Japan
and Korea, where demand remained strong.

The percentage of internal lead concentrate sales increased slightly to 93% in 1997/8, compared with 89% in the previous year.

To optimise feed mix, Pasminco purchased some zinc and lead concentrates from other Australian and overseas mines. The largest suppliers to Pasminco’s Australian smelters were the Hellyer mine in Tasmania, the Woodlawn mine in New South Wales (prior to its closure in March 1998) and the McArthur River mine in the Northern Territory. Shipments of lead concentrate from the new Cannington mine in Queensland to the Port Pirie smelter commenced in January 1998 and will increase in future years.

When Century begins production late in calendar 1999, Pasminco’s Budel and Hobart smelters will be given priority in initial zinc concentrate deliveries. As Century’s production will increase rapidly beyond these smelters’ requirements, significant external sales will follow. Strong demand is emerging for Century concentrates and negotiations to secure long-term
contracts have reached an advanced stage.

The zinc concentrate market is expected to trend toward surplus in the next few years but anticipated mine closures, new smelter start-ups and incremental capacity increases during the early part of the next decade are likely to reverse this situation. The lead concentrate market is likely to remain in surplus for some time.

Click here to download PDF files of:

- Operations at a Glance (excerpt from Annual Report 1998)
- Production 5-Year Summary (excerpt from Annual Report 1998)
- Performance 10-Year Summary (excerpt from Annual Report 1998)

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- Pasminco Annual Report 1998 (full report including the above excerpts)

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