Last week the world’s largest zinc miner, Glencore, announced it was slashing operations in Australia, South America and Kazakhstan.
That means the loss of 535 across its mines in Queensland and the Northern Territory, and includes workers and contractors at its Lady Loretta and MacArthur River mines.
The announcement was the culmination of a horror fortnight for Glencore after its value plunged 30 per cent overnight on a poor outlook report from analysts at Investec.
The share price recovered more than half its losses the next day, but high debt levels and low commodity prices forced it to look for savings, including the zinc mine closures.
The price of zinc has dropped from US$2,400 in May to under US$1,700 recently, however the price did put on 10 per cent after the Glencore announcement.
The price crunch that has slayed zinc has been played out across the base metals sector.
Nickel has had its worst four years since the global financial crisis.
Speaking at the Paydirt Nickel Conference in Perth, base metals analyst with Alto Capital, Carey Smith, described the price, US$4,800 tonne as dismal.
“It’s a recipe of big inventories on the London Metals Exchange, global production up with a number of mines coming on stream around the same time, and demand down due in a large part to the slowdown in China.
“China buys more than half of Australia’s nickel and the Chinese economy has slowed tremendously.”
China also buys significant volumes of the other base metals tin, copper, aluminium and lead which are also under enormous price pressure.
But there is a growing school of thought that the always cyclical mining sector will soon start to pick up.
Light at the end of the tunnel for base metals prices
In its annual base metals outlook, market analyst and mining publishing house Thomson Reuters sees a better outlook for most prices.
It said copper was at the bottom of the price cycle and it expected it to turn a corner by early 2016 when output contracts by 100,000 tonnes.
Thomson Reuters said the price was improving by 4 per cent annually and would end next year substantially higher than now.
We cut costs, we make redundancies, we keep costs below ever-dropping nickel price, but at the same time we’re laying the foundations for a new phase of growth.
David Moore, Mincor Resources
It is also tipping nickel prices to increase by nine per cent next year.
Carey Smith is much more bullish on the nickel outlook.
“Our view is that the nickel price will hit at least US$20,000-US$25,000 a tonne before March 2017, and the lower Australian dollar will help local producers also.”
Miners like David Moore of Mincor Resources are coping with price constraints by mothballing mines and laying off workers, but he still has an eye on the eventual recovery.
“We cut costs, we make redundancies, we keep costs below ever-dropping nickel price, but at the same time we’re laying the foundations for a new phase of growth through some projects that we’ve got and can put into production in the next few years,” he said.
“We’re carrying out feasibility studies on new projects. We’re actually laying the foundations for a new phase of growth when the nickel price returns to some semblance of value.”
The outlook for the zinc price is far from as bullish but tightening supply, brought about in part by Glencore removing four per cent of global production, is expected to help.
Some, like Peter Bradford from diversified mining company the Independence Group, said the potential for supply-demand deficits in zinc was why he was looking at future opportunities.
“People have been talking about that for a very long time with zinc, and it’s one of the motivations for us when we bought the Jaguar operation nearly four years ago,” he said.
“It’s been a long time coming, like the bow wave on a boat, as the boat moves the wave moves.
“But we’ve got some serious mine closures this year, and that creates a pretty good outlook for zinc.”
ABC
