Global zinc supply uncertain after earthquake in China

The fate of zinc mining operations in China remains unknown after a massive earthquake devastated much of Sichuan province on May 12, leaving more than 40,000 people dead.

News agencies are reporting that up to 510,000 tonnes of zinc smelting capacity in China has been affected after production was halted at more than 10 zinc smelters in Sichuan province, as well as in neighbouring Shaanxi and Gansu provinces.

China is the world’s major zinc producer with a smelting capacity of more than 4 million tonnes.

Meanwhile, in Africa, a strike at Anglo American’s (AAUK-Q , AAL-L), Skorpion zinc mine that started on May 10 will likely affect prices as well. Skorpion is Namibia’s biggest zinc producer, churning out about 150,000 tonnes of special high-grade zinc per year.

The events in China and Namibia have combined to push up prices. Official zinc prices on the London Metal Exchange closed at US$2,265.50 per tonne for cash and US$2,297.50 per tonne for three months on May19, up from US$2,159 per tonne cash and US$2,190 per tonne for three months on May 12.

“It has pushed the price up a little — very modestly, though,” says Patricia Mohr, vice-president of economics at Scotiabank. “In the last twelve months, prices of zinc have moved down because of anticipation of new mine supply coming on-stream this year and I think a lot of investment funds have been shorting zinc because of that.”

About 46% of China’s total zinc smelting capacity lies in tremorstricken regions. Reuters news agency reported that as much as 11% of the nation’s smelting capacity was probably affected by the quake.

Sichuan province, the epicentre of the earthquake, produced 130,000-140,000 tonnes of zinc concentrate last year and its output makes up about 7% of the country’s total, according to Interfax news agency.

The 7.9 magnitude earthquake was China’s worst in 58 years and has caused massive damage, disrupting roads and power plants.

Major safety issues remain with reservoirs, hydropower stations and lakes.

Some of the Chinese companies that were shut down include: Sichuan Hongda Chemical Industry (100,000 tons); Gansu Baohui Zinc Co. (60,000 tons); Gansu Chengzhou Metallurgical Group Co. (50,000 tons); Hanzhong Bayi Zinc Industry Co. (120,000 tons); Huidong Zinc & Lead (50,000 tons); and Xichang Zinc Industry Co. (30,000 tons).

Some analysts say the temporary closures at the Chinese smelters aren’t likely to have a long-term impact on zinc supply and prices. Stockpiles of the metal monitored by the London Metals Exchange have gained 40% this year to 124,775 tons, according to Bloomberg.

In Namibia, striking workers who are paid about US$388 per month want wage increases of 14%, while Anglo American is offering 12%. They also want a housing allowance that exceeds what the company is willing to pay. In addition, the workers are demanding transportation to the capital city, Windhoek, when they go on leave. The majority of workers at the mine come from northern Namibian villages near the Angolan border.

The Skorpion mine, which consists of an open pit and a hydrometallurgical refinery, is 25 km north of Rosh Pinah in southern Namibia.

James Wyatt-Tilby, a Londonbased spokesman for Anglo, told The Northern Miner that “the majority of production is still happening,” but declined to give a figure.

The disruption of zinc supply out of China and Namibia has helped buoy the stock price of zinc players like Teck Cominco (TCK. B-T, TCK-N).

Since the earthquake struck, Teck’s shares on the Toronto Stock Exchange have climbed to $49.35 apiece from $47.99.