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Outlook mixed for base metals at PDAC

Keywords: Tags  zinc, PDAC, Canada, Macquarie, Duncan Hobbs, Full Metal Zinc, Michael Williams copper, nickel lead

TORONTO — Zinc and nickel prices are likely to trend down in 2013 as global supply exceeds demand, according to an analyst at Macquarie Capital Securities Ltd., even as one zinc mining company claims the zinc price could skyrocket as high as $1.70 per pound within a few years due to a lack of new zinc projects.

Macquarie analyst Duncan Hobbs told the Prospectors and Developers Association of Canada (PDAC) Convention in Toronto on March 3 that the zinc market is suffering from “oversupply,” keeping the global market under pressure.

“There’s too much metal, there’s too much concentrate,” Hobbs said. “We’ve heard time and time again that zinc markets will be tight over the next few years, but we feel there are enough projects in the pipeline to meet any increase in demand.”

Full Metal Zinc Ltd. chief executive officer Michael Williams disagreed, however, claiming in his own presentation that “rising demand, significant mine closures and a severe lack of previous mine development will lead to a zinc deficit in the short to medium term.”

Williams, whose Vancouver-based exploration company is evaluating a zinc property in Alaska, said that the view of zinc as “copper’s poorer cousin” over the last few years has resulted in a lack of significant investment in the zinc mining sector.

“With the higher margins on other base metals, companies have been focusing their efforts on ABZ: anything but zinc,” he said. “Raising money for a zinc project is significantly more difficult than raising money for a copper project. The good news is this exacerbates the supply picture.”

Williams said he believes that “the catalyst for a supply shortfall is right around the corner,” forecasting that some 12 percent of zinc supply will be lost within a few years due to impending mine closures at Xstrata Plc’s Brunswick mine and China Minmetals Corp.’s Century mine.

“The deficit in 12 years could be seven million tons per year,” he said. “I believe we’ll get out of bed one day and the zinc price will be $1.20 (per pound), and then weeks later will be trading above $1.70.”

On March 4, three-month zinc closed on the London Metal Exchange at $2,014 per tonne, or 91.4 cents per pound.

Meanwhile, Macquarie’s Hobbs said that an increase of global nickel smelting capacity over the next year was likely to negatively impact pricing in that market as well.

“In our view, nickel is headed for another year of oversupply and prices are likely to come down as a result,” he said.

Hobbs claimed that pricing fundamentals are strongest in markets “where China doesn’t already have supply in the ground,” such as copper.

“There’s some doubt as to whether copper projects in the pipeline can meet even moderate increases in demand,” Hobbs said.
Likewise, a dearth of primary lead mining projects outside China will support lead prices in the long term, he added.

“We think lead recycling already runs flat out. Outside of China, there’s no net growth in lead supply over the next four years,” he said. “Lead demand looks pretty solid. The major use of lead is in car batteries, and that demand is unlikely to change any time soon.”

Hobbs said that while sentiment was cooling on the Chinese market in some areas, he expected the “urbanization” of the Asian nation to continue to drive the base metals market for years to come.

“There’s still potentially a long way to go in their urbanization story,” he said.

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