Suspension of MMG Australian zinc Mine Has Little Impact on Zinc Prices

SHANGHAI, Feb 16 (SMM) - According to the latest news, MMG Ltd has halted operations at its zinc mine in Australian’s Queensland state after two people employed by a contractor were missing following an incident at the mine. 

According to public information, Dugald River is 100% owned by the MMG Limited and is one of the world’s top 10 zinc operations. Due to the scale of the ore body, Dugald River is estimated to have a mine life of 20+ years to process an average of 1.7 million tonnes of ore per annum. The operation predominantly produces zinc concentrate, with by-products including lead and silver. The annual output in 2022 was 173,400 mt.

SMM will continue to follow up the developments of the mine.

After the news was released, LME zinc rebounded and rose 1% as of 15:26, while the decline in SHFE zinc narrowed and closed with losses of 1.02%. Market attention is still focused on the recovery of Chinese consumption and whether European smelters will resume the production.

 Since the outbreak of the energy crisis in Europe in 2021, the soaring energy prices have caused a lot of impact on European zinc smelters, which has led to a sharp decline in the zinc supply in the entire Europe. The previous SMM surveys showed that as of October 2022, the suspended capacity of European smelters has reached about 800,000 mt per year.

Now, with the gradual easing of geopolitical impacts, European energy prices have remained at a one-and-a-half-year low. In addition, as the European heating season is coming to an end, the profits of smelters has improved. As such, the market has shifted its attention to the resumption of production of European smelters.

In addition, the recovery of consumption in China, the world's largest consumer, is also a particular concern to the current market. According to SMM data, last week, the zinc downstream enterprises recovered rapidly. The weekly operating rate of SMM galvanising increased from 55.73% on February 3 to 76.46%, an increase of 20.73 percentage points. The weekly operating rate of die-casting enterprises increased from 32.41% to 61.53%, an increase of 29.12 percentage points. The operating rate of zinc oxide increased from 44% to 62.1%, an increase of 18.1 percentage points. Good consumption expectations boosted the overall high operating rates.

On the macro front, the latest retail sales released by the Federal Reserve far exceeded expectations, which means that the Federal Reserve may continue raising interest rates or maintain restrictive high interest rates for a longer period of time. The bearish macro atmosphere has suppressed zinc prices. Today, the most-traded SHFE zinc contract continued to drop and once hit the lowest point at 22,660 yuan/mt, setting a new low since November 7, 2022, down 2,140 yuan/mt or 8.63% from the highest point of 24,800 yuan/mt on January 30.

In the spot market, SMM #0 zinc price stood at 22.820 yuan/mt today, a new low since July 19, 2022.

In addition, the output in china may keep increasing in light of the high TCs and high profits.

However, the inventory increased slow as downstream enterprises purchased actively on dips. As of February 13, the social inventory of zinc ingots in the seven major producing areas totalled 187,800 mt, a slight increase of 2,300 mt from February 10.

Overall, the US retail sales data was higher than expected, the market raised its forecast for the Fed to raise interest rates, which boosted the US dollar index while weighed on zinc prices.  The recent zinc prices were more affected by the macro front, and SMM expects that zinc prices may remain the weakness in the short term.