Coming on strong
|Hudbay’s Lalor zinc, gold and
copper mine is 210 kilometres
east of Flin Flon Manitoba | Courtesy of HudBay
The world’s largest zinc mines are closing and it is hard to
underestimate the impact this will have on prices for the base
The third quarter of 2015 will see Australia’s huge Century
zinc mine end production after putting out more than
455,000 tonnes this year and 488,233 tonnes in 2013.
Last year Glencore wound down production at the
Brunswick and Perseverance mines in Canada, taking a large
share of supply with them too. “That’s the major driver why
we see zinc prices moving a lot higher in the years to come,”
says Mike Dragosits, senior commodity strategist at TD Securities,
citing the fizzling out of other large mines in Ireland
(Vedanta) and Peru.
At current rates, some analysts expect 14 per cent of zinc
concentrate production to evaporate before 2016. Despite production
increasing in India, Mexico, and China, these projects
are churning out lower grades at smaller mines.
“We’re forecasting a deficit in the market over the next few
years,” said Dragosits. “The anticipation of those much larger
deficits in the years to come is going to move the market ahead
of fundamentals a little bit,” says Dragosits. Throughout 2015,
he adds, zinc will trend upwards, hitting highs just before
2016. Annual average forecast prices in 2015 sit at US$2,480
per tonne with a year-end quarterly average of US$2,513 per
|The opening ceremonies at HudBay’s Lalor mine | Courtesy of HudBay
Zinc is currently listed around US$2,220 per tonne, with
a more muted outlook in the next couple of months. Despite
growth in the U.S. economy, Dragosits says, the market right
now is overshadowed by the economic slowdown in both
China and Europe.
“China is undergoing a slowing regime kicked off by government
officials positioning to put the economy on a betterquality
growth track,” he says. Officials have tamped down on
the property market, which will impact prices over the next
few months, he adds. Dragosits’s view is that China will eventually
stabilize and return to drive demand for base metals like
zinc, which is used in nuclear reactors, steel, rubber and the
manufacture of sunscreens and dietary supplements, as well
as to preserve lumber for construction and galvanize iron.
In Europe, investors are waiting to see if the European Central
Bank’s one-trillion-euro stimulus in the sluggish eurozone
will shock the economy back to life. “We don’t expect spectacular
growth there, but aside from near-term weakness, we
see some stability in the European economies,” Dragosits says.
These factors, and better growth in the U.S. in the coming
years, will drive zinc demand.
Canada produces roughly 5.4 per cent of the world’s total
supply of refined zinc. The country’s newest contributors are
Glencore’s Bracemac-McLeod mine in Quebec, which began
production in 2013, and HudBay Minerals’ Lalor mine in
Manitoba, where mine construction was completed this year.
In anticipation of higher prices, Canadian firms are exploring
for the metal throughout the country, with a few promising
– Graham Lanktree
It has been an eventful year for potash. The market was in
turmoil for much of 2014 – the result of Russian-based Uralkali’s
withdrawal from the Belarus-led cartel BPC – but today
prices are up and demand has reached new heights. Paul
Burnside, Potash Consultant at the CRU Group, explains that
although underlying consumption is good, the surge in
demand can be deceptive.
“The second half of 2013 was very weak on demand
because of so much uncertainty over pricing, and people
preferred to draw down inventories,” says Burnside. When
buyers did come back, demand was strong, but this
included a lot of restocking. Actual consumption, he
warns, “has responded to lower prices but is not as strong
as apparent demand would indicate.” The European and
North American markets are both mature, while China and
India have not met expectations in recent years. The standout
performer is Brazil, which is almost entirely importdependent.
It is also a major producer of sugar cane and is
opening up large amounts of agricultural land with poorer
soil, both activities requiring heavy application of fertilizer.
A lot of new capacity is coming online. Much of this is in
Canada, with PotashCorp being the most aggressive, including
its newly commissioned Picadilly project in New Brunswick.
“There’s been a lot of investment in building capacity, and now
this new capacity is coming on stream, but the industry’s
approach to pricing hasn’t promoted demand growth,” says
Burnside. Consumption, he says, now must increase steadily
if the market is going to absorb this new capacity.
The key to curbing overproduction will be industry discipline,
notes Burnside. However, the recent brine inflow that
has halted production at Uralkali’s Solikamsk-2 mine will also
play a role. The mine accounts for 2.8 per cent of global capacity,
and it is uncertain whether the mine will have to be abandoned.
While producers in North America, with their new
capacity, could easily replace what has been lost, Burnside
says, “Uralkali’s prognosis is likely to influence forthcoming
price negotiations with China and other buyers.”
– Correy Baldwin
The difference one year makes
Gill Winckler can be excused for
looking a little shell-shocked standing at
the podium, telling the story of what has
happened to her thermal coal mine in
the year since she last spoke at the Coal
Association of Canada’s annual conference.
In 2013 the president and CEO of
Coalspur Mines was busy preparing to
build the company’s Vista thermal coal
mine in Alberta – a project that was
fully engineered, had most of its permits,
and was already planning to construct
a first-phase, six million
tonne-per-year plant. The company
had also secured about $350 million of
the $500 million project cost.
In September 2013, it was widely
believed that the Newcastle thermal coal
spot price of US$77 per tonne (US$/t)
was at the bottom, having dropped 11
per cent from the year before, in turn 28
per cent off of prices the year before that.
“It went south instead, and today the spot
price is US$66/t,” said Winckler. “Not
only is the price down, but the expectations
have gone down for a few years.”
This downturn in thermal coal has
occurred in lockstep with metallurgical
coal – a situation where prices continue
to creep downwards in response to a
glut. “It’s just a terrible time for oversupply
in thermal coal,” lamented Wood
Mackenzie coal price analyst Joe Aldina,
who pointed to Indonesia as a large contributor
to the thermal coal oversupply.
Wood Mackenzie predicts the oversupply
situation will persist through 2020,
although prices will rise in 2015.
So what is a company like Coalspur to
do? Winckler has focused the company
on adding value to the asset by creating
certainty around construction costs and
making mine design improvements. An
ongoing strategic review is considering
various options: looking to recapitalize,
maybe a joint venture, or selling the asset
“We’ve got a project that is ready to
go,” concluded Winckler. “It’s different
from last year, but we know Vista will be
– Christopher Pollon
Next: Salt, Tin, Tungsten, Cadmium, Talc, Magnesium, Titanium and Aluminum