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Smelters May Win Higher Zinc Fees as Mine Supply Increases

Industry News 10:05:27AM Mar 01, 2010 Source:SMM

TOKYO, Mar. 1 -- Korea Zinc Co., the world's second- largest smelter, and Mitsui Mining & Smelting Co., may win higher processing fees on increased mine supply, said analysts Atsushi Yamaguchi and Kim Gyung Jung.

"We expect a small increase of 2.5 percent this year as mine supply is now enough," said Yamaguchi, a Tokyo-based analyst at UBS AG. "Actual processing fees" are predicted to increase to $363 a metric ton in 2010 from $354 in 2009, based on an average zinc price of $2,538 a ton, according to Yamaguchi.

Zinc, used to galvanize steel, has doubled in the past year as the global economy recovered from its worst postwar recession, spurring more mine production. The fee paid to smelters gains when the supply of raw material, or so-called concentrate, grows as miners compete for processing capacity. Agreements between Teck Resources Ltd. and Korea Zinc typically set a benchmark.

Annual fees are normally settled during the American Zinc Association's industry gathering, said Kim, an analyst at Samsung Securities in Seoul. The meeting will be held from Feb. 28 to March 2 in Scottsdale, Arizona, its Web site shows.

Samsung's Kim and Lee Won Jae, an analyst with SK Securities Co. in Seoul, also said smelters should benefit this year from higher metal prices, declining to elaborate.

Korea Zinc spokesman Lee Sang Hoon and Mitsui Mining & Smelting spokesman Yushi Sugiura said yesterday that no deal had been reached, while Teck Resources declined to comment.

Mitsui Mining & Smelting and Sumitomo Metal Mining Co. own a joint venture called MS Zinc Co., Japan's top smelter. Teck Resources, which owns the world's biggest zinc mine at Red Dog in Alaska, is the largest producer after Xstrata Plc.

Metal Price

The metal for three-month delivery climbed 3 percent to $2,179 a metric ton at 6:40 p.m. Singapore time today. The price reached $2,736 on Jan. 7, the highest level since March 2008.

Macquarie Group Ltd. has forecast that the fees will move in favor of mining companies.

"Terms will probably settle on a benchmark treatment charge in the mid-$200s at a base zinc price of $2,000 a ton," Macquarie Group analysts, including Colin Hamilton, said. This would represent a drop in the share of revenues to smelters at this price level compared with last year, they said.

"This comes despite a steeper rise in smelters' costs compared with miners' costs in recent years and is a trend that we expect to continue in the medium term," the Macquarie analysts wrote in a Feb. 22 report.

Price Adjustments

The benchmark fee was set around $196.5 a ton with a base price of $1,250 in 2009, Macquarie's analysts said. Smelters were paid a so-called "escalator" of 13 cents for every $1 gain above the base price, they said. For every $1 drop, smelters received 12 cents less.

"We think that smelters' price participation will be reduced from last year's levels and would not be surprised to see these levels halved," Macquarie said.

Bank of America-Merrill Lynch estimated this year's mine output increases could boost zinc supply by 1.1 million tons, analyst Michael Widmer said Feb. 8. The realized fees could potentially be around $230 a ton based on an average price forecast of $2,125 a ton, compared with $245 a ton on an average $1,686 in 2009, Widmer said.

World zinc mine output in 2009 was 11.4 million tons, 2.7 percent lower than in 2008, the International Lead and Zinc Study Group said Feb. 17.

China's zinc concentrate imports jumped to 400,605 tons in December, up 17 percent from a month earlier and 52 percent from a year ago, Natixis Commodity Markets Ltd. said Feb. 22. The gain reflected China's growing demand for concentrates as smelters return to full capacity, it said.

 

 

Smelters May Win Higher Zinc Fees as Mine Supply Increases

Industry News 10:05:27AM Mar 01, 2010 Source:SMM

TOKYO, Mar. 1 -- Korea Zinc Co., the world's second- largest smelter, and Mitsui Mining & Smelting Co., may win higher processing fees on increased mine supply, said analysts Atsushi Yamaguchi and Kim Gyung Jung.

"We expect a small increase of 2.5 percent this year as mine supply is now enough," said Yamaguchi, a Tokyo-based analyst at UBS AG. "Actual processing fees" are predicted to increase to $363 a metric ton in 2010 from $354 in 2009, based on an average zinc price of $2,538 a ton, according to Yamaguchi.

Zinc, used to galvanize steel, has doubled in the past year as the global economy recovered from its worst postwar recession, spurring more mine production. The fee paid to smelters gains when the supply of raw material, or so-called concentrate, grows as miners compete for processing capacity. Agreements between Teck Resources Ltd. and Korea Zinc typically set a benchmark.

Annual fees are normally settled during the American Zinc Association's industry gathering, said Kim, an analyst at Samsung Securities in Seoul. The meeting will be held from Feb. 28 to March 2 in Scottsdale, Arizona, its Web site shows.

Samsung's Kim and Lee Won Jae, an analyst with SK Securities Co. in Seoul, also said smelters should benefit this year from higher metal prices, declining to elaborate.

Korea Zinc spokesman Lee Sang Hoon and Mitsui Mining & Smelting spokesman Yushi Sugiura said yesterday that no deal had been reached, while Teck Resources declined to comment.

Mitsui Mining & Smelting and Sumitomo Metal Mining Co. own a joint venture called MS Zinc Co., Japan's top smelter. Teck Resources, which owns the world's biggest zinc mine at Red Dog in Alaska, is the largest producer after Xstrata Plc.

Metal Price

The metal for three-month delivery climbed 3 percent to $2,179 a metric ton at 6:40 p.m. Singapore time today. The price reached $2,736 on Jan. 7, the highest level since March 2008.

Macquarie Group Ltd. has forecast that the fees will move in favor of mining companies.

"Terms will probably settle on a benchmark treatment charge in the mid-$200s at a base zinc price of $2,000 a ton," Macquarie Group analysts, including Colin Hamilton, said. This would represent a drop in the share of revenues to smelters at this price level compared with last year, they said.

"This comes despite a steeper rise in smelters' costs compared with miners' costs in recent years and is a trend that we expect to continue in the medium term," the Macquarie analysts wrote in a Feb. 22 report.

Price Adjustments

The benchmark fee was set around $196.5 a ton with a base price of $1,250 in 2009, Macquarie's analysts said. Smelters were paid a so-called "escalator" of 13 cents for every $1 gain above the base price, they said. For every $1 drop, smelters received 12 cents less.

"We think that smelters' price participation will be reduced from last year's levels and would not be surprised to see these levels halved," Macquarie said.

Bank of America-Merrill Lynch estimated this year's mine output increases could boost zinc supply by 1.1 million tons, analyst Michael Widmer said Feb. 8. The realized fees could potentially be around $230 a ton based on an average price forecast of $2,125 a ton, compared with $245 a ton on an average $1,686 in 2009, Widmer said.

World zinc mine output in 2009 was 11.4 million tons, 2.7 percent lower than in 2008, the International Lead and Zinc Study Group said Feb. 17.

China's zinc concentrate imports jumped to 400,605 tons in December, up 17 percent from a month earlier and 52 percent from a year ago, Natixis Commodity Markets Ltd. said Feb. 22. The gain reflected China's growing demand for concentrates as smelters return to full capacity, it said.