Regional Changes in Refined Zinc Output and Demand
619
Bearing in mind the outlook for development of refined zinc demand regionally,
it is noteworthy that the last nine years have seen 13 zinc smelters outside China
close, with the loss of close to 1 Mt of capacity. The last greenfield zinc smelter
outside China was commissioned in 2010, but capacity expansions have taken place
at a number of plants, notably in South Korea, Mexico, India, and Norway, compensating for capacity losses since 2010, but not adding to capacity overall. Over the
next five years, there are some further expansions of smelting capacity planned and
already in the process of ramping up to higher output, namely in India, Australia,
Norway, Mexico, Poland, and Japan. There are also two greenfield projects, namely
at AZR Mooresboro in the USA where commissioning of the new operation, now
anticipated for early 2020, has been subject to a number of delays but which represents replacement capacity for a plant closed in 2014 and a new multi-metal smelting
complex in Saudi Arabia being constructed in a joint venture between Trafigura and
Modern Mining Holdings, though as yet no exact timing for the start-up this project
has been announced. These projects have the ability to raise annual refined zinc
production outside China from 7.5 Mt in 2018 to 8.3 Mt by 2023, a net increase of
0.8 Mt.
While refined zinc production capacity outside China appears, on the surface,
sufficient to meet anticipated demand growth outside China, this assumes output is at
full capacity at all zinc smelters and that there are no further closures of zinc smelting
capacity. The first assumption is clearly unrealistic and the second assumption cannot
be fully relied upon. It also does not take into account the fact that current refined
zinc inventories outside China are at historically low levels in relation to demand,
a factor that may not matter, while the global economy is experiencing a cyclical
business downturn but may become a major issue when refined zinc demand starts
to pick up more significantly from 2020/2021. And, most importantly, it takes no
account of the fact that both the global, and the world excluding China, markets
were in substantial deficit in 2018. Indeed, following four years of large refined zinc
annual surpluses from 2008, these markets moved into supply deficits in 2012 and
have been in deficit every year since 2012, leaving inventories now at historically
low levels. In other words, this means that some of the demand for zinc in each year
since 2012 has been met from inventory.
Therefore, in addition to the 0.8 Mt increase in annual zinc smelting capacity
outside China expected by 2023, a further 0.3–0.5 Mt of new annual capacity will be
needed to meet anticipated increases in demand. Stringent environmental policies,
coupled with local objections, make expanding capacity in many OECD locations
(e.g. Europe, North America, and Japan) more costly and may not be economically
viable. However, there are a number of locations where new capacity is being evaluated (e.g. at Gamsberg in South Africa) and we would expect to see further new
capacity perhaps also being considered in the Middle East, Central Asia, and India.
But there remains the question of how soon any such new projects, particularly
greenfield plants, could be commissioned.
One feature which may ease anticipated pressure on refined zinc supplies outside
China over the next 2–3 years would be a decline in Chinese imports of refined zinc
from the rest of the world. We have discussed reasons to expect only very modest
619
Bearing in mind the outlook for development of refined zinc demand regionally,
it is noteworthy that the last nine years have seen 13 zinc smelters outside China
close, with the loss of close to 1 Mt of capacity. The last greenfield zinc smelter
outside China was commissioned in 2010, but capacity expansions have taken place
at a number of plants, notably in South Korea, Mexico, India, and Norway, compensating for capacity losses since 2010, but not adding to capacity overall. Over the
next five years, there are some further expansions of smelting capacity planned and
already in the process of ramping up to higher output, namely in India, Australia,
Norway, Mexico, Poland, and Japan. There are also two greenfield projects, namely
at AZR Mooresboro in the USA where commissioning of the new operation, now
anticipated for early 2020, has been subject to a number of delays but which represents replacement capacity for a plant closed in 2014 and a new multi-metal smelting
complex in Saudi Arabia being constructed in a joint venture between Trafigura and
Modern Mining Holdings, though as yet no exact timing for the start-up this project
has been announced. These projects have the ability to raise annual refined zinc
production outside China from 7.5 Mt in 2018 to 8.3 Mt by 2023, a net increase of
0.8 Mt.
While refined zinc production capacity outside China appears, on the surface,
sufficient to meet anticipated demand growth outside China, this assumes output is at
full capacity at all zinc smelters and that there are no further closures of zinc smelting
capacity. The first assumption is clearly unrealistic and the second assumption cannot
be fully relied upon. It also does not take into account the fact that current refined
zinc inventories outside China are at historically low levels in relation to demand,
a factor that may not matter, while the global economy is experiencing a cyclical
business downturn but may become a major issue when refined zinc demand starts
to pick up more significantly from 2020/2021. And, most importantly, it takes no
account of the fact that both the global, and the world excluding China, markets
were in substantial deficit in 2018. Indeed, following four years of large refined zinc
annual surpluses from 2008, these markets moved into supply deficits in 2012 and
have been in deficit every year since 2012, leaving inventories now at historically
low levels. In other words, this means that some of the demand for zinc in each year
since 2012 has been met from inventory.
Therefore, in addition to the 0.8 Mt increase in annual zinc smelting capacity
outside China expected by 2023, a further 0.3–0.5 Mt of new annual capacity will be
needed to meet anticipated increases in demand. Stringent environmental policies,
coupled with local objections, make expanding capacity in many OECD locations
(e.g. Europe, North America, and Japan) more costly and may not be economically
viable. However, there are a number of locations where new capacity is being evaluated (e.g. at Gamsberg in South Africa) and we would expect to see further new
capacity perhaps also being considered in the Middle East, Central Asia, and India.
But there remains the question of how soon any such new projects, particularly
greenfield plants, could be commissioned.
One feature which may ease anticipated pressure on refined zinc supplies outside
China over the next 2–3 years would be a decline in Chinese imports of refined zinc
from the rest of the world. We have discussed reasons to expect only very modest