Zinc prices boom to 14-year highs as power costs hit producers

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Zinc prices have surged to 14-year highs this week, rising by over 24% on a month-over-month basis.

The LME three-month zinc price closed Friday at $3,757 per metric ton, according to MetalMiner Insights data. Chinese primary cash zinc closed Monday at $742 per metric ton, up 20.86% month over month.

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Power costs and zinc prices

zinc

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As MetalMiner’s Stuart Burns reported Friday, surging power costs around the world are weighing on a number of industries, including metals.

Belgian zinc producer Nyrstar last week announced output cutbacks, citing power costs. Effective Oct. 13, the Belgian firm said it would reduce output at its three European smelters by up to 50%.

“Zinc, like aluminum, is smelted using vast amounts of electricity. Power is rationed and as power costs rise, as is happening in China and Europe, so does zinc,” Burns commented Monday.

Nyrstar said its plants are fully electrified. Its operations in the Netherlands and Belgium purchase electricity predominantly generated from renewable power sources, Nyrstar said.

“Significant increases in the cost of electricity in recent weeks, and the cost burden of carbon emitted by the electricity sector which is passed on to industrial and domestic customers, mean it is no longer economically feasible to operate the plant at full capacity,” Nyrstar said. “Indirect cost compensation for energy-intensive producers to protect their competitiveness versus non-EU producers varies by European country and this puts Nyrstar’s Budel, Balen and Auby plants at a competitive disadvantage, compounding the impact of extreme energy prices.”

Glencore to sell Bolivian zinc assets

Furthermore, Glencore last week announced it has reached an agreement to sell its zinc assets in Bolivia to Santa Cruz Silver Mining, Ltd. 

The Bolivian zinc assets include Sinchi Wayra S.A. and Sociedad Minera Illapa S.A. 

“Compared to other metals, some of the largest zinc smelters are located in Europe, where Nystar and Glencore announced production cuts, compounding the ongoing power crisis in China which is cutting smelting production,” explains Maria Rosa Gobitz, MetalMiner senior forecast analyst. “The European cuts which add up to approximately 1,495 ktpa represent about 11% of annualized global production. These European smelters operate mostly with natural gas.”

Glencore will receive an initial U.S. $20 million. Furthermore, it will receive an additional $90 million to be paid within four years. The deal is pending regulatory approvals in Canada.

Gazprom reports rise in natural gas production

Russia natural gas producer Gazprom, a major supplier to Europe, reported production of 399.4 billion cubic meters of natural gas through the first 9.5 months of 2021.

The output total marked a 16.6% year-over-year increase.

Earlier this month, Burns commented on the state of natural gas supply from Gazprom to Europe.

“But a surprise announcement by Vladimir Putin yesterday saying Russia was prepared to increase supplies to stabilize prices prompted a sharp sell-off, sending the price down to £2.87,” Burns wrote Oct. 7.

“Whether it stays there will depend in large part on whether Russia can honor that commitment in the months ahead. Russian state gas supplier Gazprom has come under intense criticism for deliberately shipping to no more than its minimal contractual obligations this year. The reality is Russia’s own inventory levels are also depleted after a harsh winter.”

Furthermore, Gazprom said it increased exports to countries outside of the former Soviet Union states by 13.1% year over year to 152.2 billion cubic meters.

During the period, the firm increased exports by 28.2% to Germany, by 16.3% to Italy and by 10% to Poland, among others.

“The transition to winter mode is taking place while the gas inventories in Europe’s UGS facilities are at their lowest in years,” Gazprom said Monday. “The negative difference against last year’s inventories is 18.5 billion cubic meters of gas. Only 71 per cent of the amount of gas withdrawn from European facilities in the last season was replenished.”

Natural gas prices

Despite Putin’s comments earlier this month regarding increasing supply to Europe, natural gas prices have risen anew.

Dutch TTF gas futures fell to around €40 per MwH in mid-August before surging to €116 on Oct. 4, according to ICE data. However, after retracing to start the month, TTF gas futures rose as high as €108 per MwH on Monday.

Meanwhile, U.K. National Balancing Point futures showed a similar surge, rising as high as £2.70 per therm, according to ICE data.

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