Zinc and lead stocks so low, metal consumption could be constrained
Dorothy Kosich
'01-NOV-06 09:00'
RENO, NV (Mineweb.com) --Teck Cominco executives Tuesday forecast that world zinc stocks will contain only 11 days of supply by the end of this year, and may sink so low that it could “constrain metals consumption.”
In a conference call to discuss third-quarter financial results, the Vancouver-based miner also noted that lead LME stocks have declined to only two days of global consumption.
Mike Agg, Vice President Refining & Metal Sales for Teck Cominco, said the shortage of zinc concentrates is already limiting global metal production, as the globally tight concentrate market continues through 2006 and 2007. As a result, Agg said the deficit will cause the drawdown on zinc stocks to continue and could actually “constrain metals consumption. He noted that only 18 days of total global zinc stocks remained at the end of September. London Metals Exchange stocks have fallen 73% so far this year to only 3.8 days of global consumption, according to Agg. Meanwhile, zinc has hit a record high of $1.95 per pound.
Agg explained that zinc spot premium prices are rising in most markets, including that “strong demand is outstripping supply” and “a lack of availability [of zinc] in local markets.” Global zinc demand is up 5.5% in the Americas, 5.7% in Europe, and 4.9% in Asia, as of the end of August.
Meanwhile, although LME stocks of lead rose to 70,000 tonnes during the first half of this year, Agg said the stocks have now declined to the mid-40,000-tonne range. Currently, he estimated LME stocks only contain two days of global lead consumption. In the meantime, the lead price hit the historic high of 75-cents per pound on Tuesday.
Teck Cominco Manager of Market Research Andy Roebuck forecast a deficit in the copper concentrate market for the remainder of this year and in 2007. Since available stockpiles are still low, Roebuck suggested restocking of copper concentrates could continue well into next year. He estimated that 129,000 tonnes of copper remain in LME stocks, or 25 days of global consumption, noting that 90% of those stocks are being stored in warehouses in South Korea and Singapore.
Teck has experienced its own zinc woes as zinc sales at the Alaskan Red Dog mine were 80,000 tonnes lower during the third quarter due to adverse weather conditions, which delayed the start of the shipping season, and further delayed loading and shipment. Teck Cominco President and CEO Don Lindsay said that due to the tight concentrate market and the delays, the company wasn’t able to get enough zinc to market rapidly enough during the third quarter.
The company also experienced headaches at its Pogo gold project in Alaska as an excavator cut through a power cable, resulting in a fire which damaged a power substation. Power is expected to be fully restored by the end of the year.
Meanwhile, the company also will take a $9 million charge for “social contributions” to be made by its sahre of the Antamina mine in Peru. The Peruvian Government has been pressuring mining companies to finalize a “voluntary” windfall profits program to pay for local Peruvian social programs. However, Teck Executive Vice President and COO Peter Kukielski told analysts that he doesn’t believe there will be a “fixed royalty” at Antamina, due to a contractual agreement.
FINANCIAL RESULTS
CEO Lindsay told analysts that the company will focus on international growth projects, such as the possibility of building a copper smelter at its Highland Valley project, and doesn’t expect to attempt another large acquisition. The company dropped its bid for Inco, and will sell its Inco stock to CVRD.
The company reported $504 million in net profit or $2.34 per share for the third quarter of this year, compared with a net profit of $405 million or $2 per share for the same quarter a year ago. Year-to-date net earnings were $1.6 billion or $7.48 per share, almost double the net earnings of $835 million ($4.12 per share) during the first nine months of 2005. Despite its failed takeover bid for Inco, the company reported $3.7 billion in cash and cash equivalents at the end of September.
