Global Industry Overview - Zinc: Steady Production Growth Recovery - AUG 2017
BMI View: The global zinc concentrate industry will return to muted production growth in 2017, supported by improving prices and a solid project pipeline .
Global mined zinc production will return to growth in 2017, as increasing zinc prices encourage ramp ups. Major miners Glencore and Nyrstar's output cuts and the closure of MMG's Century mine in Australia and Vedanta Zinc's Linsheen mine in Ireland drove the decline in zinc output in 2016. Glencore, which suspended 500 thousand tonnes (kt) across three countries, reported a 25% y-o-y decline in zinc output in 2016, to 1.0 million tonnes (mnt).
As of Q117, Glencore restated there are no plans to bring back the idled capacity, however the possibility of restarts presents an upside risk to our mined zinc production forecast. The firm attributes the 90kt increase in 2017 production guidance to higher ore grades expected at the jointly owned Antamina mine in Peru. We forecast global mined zinc production to increase from 12.2mnt in 2017 to 13.4mnt by 2021, averaging 2.4% annual growth.
|Modest Rebound Ahead|
|Global Zinc Mine Production ('000 tonnes) & Growth (% y-o-y)|
|f = BMI forecast. Source: USGS, BMI|
China's zinc production growth will decelerate due to declining ore grades and increasingly stringent environmental regulations. The conservation of minerals and increasing consolidation of mining industries outlined in China's 13th Five-Year Plan will weigh on zinc output in China. Additionally, the strong support for state-owned enterprises (SOEs) in the plan will ensure that China's zinc industry remains dominated by SOEs, with increasing consolidation of smaller miners. In 2016, China cut off power to - effectively shutting down - all lead and zinc mines in Huayuan county in Hunan province, citing safety concerns.
We forecast the country's zinc production to edge higher, from 4.5mnt in 2017 to 4.7mnt by 2021, averaging 0.7% annual growth. Despite this muted growth rate, China will remain the largest global producer of zinc by a wide margin, accounting for approximately 37.3% of total output in 2017. Dominant producers will include domestic miners such as Zijin Mining, which reported a 26.2% y-o-y uptick in zinc concentrate output, to 250kt in 2016.
|China To Remain Key Player|
|Global Zinc Mine Production By Country (%), 2017f|
|f = BMI forecast. Source: USGS, BMI|
Australia's zinc production will return to solid growth in 2017, following a steep contraction in 2016 due to Glencore's curtailment of 380kt of zinc at the McArthur River and Mount Isa operations and the closing of MMG's Century mine. The subdued price environment influenced the former decision, while declining ore grades forced the latter. The Century mine produced 450kt in 2015, down from 465kt in 2014, accounting for approximately 27.3% of Australia's total output.
Nonetheless, Australia's longer term zinc production growth will be supported by vast reserves and projects such as MMG's USD1.5bn Dugald River deposit. MMG expects the project to begin production in H118, with annual output of 160kt of zinc. We forecast Australia's zinc output to increase from 899kt in 2017 to 1.2mnt by 2021, averaging 6.8% annual growth.
|Project Pipeline To Support Long-Term Growth|
|Select Countries - Zinc Mines By Phase|
|Note: Accurate as of June 20 2017. Source: BMI Mines Database|
India will drive global zinc production growth, as the country's key miner Hindustan Zinc Limited (HZL) implements a large-scale expansion plan. The firm produced 672kt of refined zinc, representing an 11% y-o-y decline due to low availability of mined metal at Rampura Agucha in the first half of the fiscal year. The decline in metal production at Rampura Agucha in 2017 was in line with the plan as the firm transitions the mine from an open pit to an underground operation and continues to ramp up in the coming quarters.
In the firm's Q317 (fiscal year ends March 2017) HZL received environmental clearances for the expansions at the Zawar and Sindesar Khurd mines. As such, we maintain a solid production growth outlook for the country, forecasting zinc output to increase from 715kt in 2017 to 1.0mnt by 2021. The company's Rampura-Agucha zinc-lead mine in Rajasthan is the world's largest zinc mine, with reserves of more than 110 mnt and a mine life of over 25 years. HZL, 64.9% owned by Vedanta Resources, accounts for approximately 90.0% of India's zinc output.
|India To Clinch Title For Largest Zinc Mine|
|Global - 10 Largest Zinc Mines By Volume ('000 tonnes)|
|Source: Hindustan Zinc Company Report|
Peru's zinc sector will experience steady output growth over our forecast period to 2021, on the back of rising prices and a strong project pipeline. Further, Peru's low-cost mining industry will attract foreign investment. For instance, in Q216, Votorantim Metais' subsidiary Minera Milpo purchased a 75% stake in the Shalipayco zinc project from Pan American Silver for USD15mn. In Q117, Glencore reported a significant y-o-y uptick in zinc output at the Antamina mine to 72.6kt, as the mine accesses and processes more zinc-copper ores. We forecast Peru's zinc production to increase from 1.3mnt in 2017 to 1.5mnt by 2021, averaging 2.6% annual growth.
|na = not available. Source: Company announcements, BMI|
|Australia||Minerals and Metals Group (100%)||Dugald River||1,500||2018|
|Saudi Arabia||Khnaiguiyah Zinc Copper Mining Co (100%)||Khnaiguiyah||870||na|
|Greenland||Greenland Minerals & Energy Ltd (100%)||Kvanefjeld||810||2017|
|South Africa||Vedanta Resources (74%)||Gamsberg||630||2018|
|Australia||Independence Group (100%)||Stockman||585||na|
|Algeria||Western Mediterranean Zinc Spa - WMZ (100%)||Oued Amizour||579||na|
|United States||Aquila Resources (100%)||Back Forty||407||na|
|Peru||Zincore Metals (100%)||Accha||300||2017|
|Canada||Trevali Mining (100%)||Halfmile||274||na|
|Mexico||Industrias Penoles (100%)||Rey de Plata (Guerrero)||268||2017|
|f = BMI forecast. Source: USGS, National sources, BMI|
|Global||Global Zinc Mine Production, '000 tonnes||13,300.0||12,809.0||11,901.4||12,179.5||12,467.4||12,770.0||13,065.7||13,390.5|
|Global||Global Zinc Mine Production Volumes, % y-o-y||-0.7||-3.7||-7.1||2.3||2.4||2.4||2.3||2.5|
|Australia||Zinc Mine Production, '000 tonnes||1,560.00||1,600.00||850.00||899.30||948.76||1,010.43||1,086.21||1,178.54|
|Australia||Zinc Mine Production Volumes, % y-o-y||2.63||2.56||-46.88||5.80||5.50||6.50||7.50||8.50|
|China||Zinc Mine Production, '000 tonnes||4,930.00||4,300.00||4,500.00||4,545.00||4,599.54||4,636.34||4,659.52||4,668.84|
|China||Zinc Mine Production Volumes, % y-o-y||-1.40||-12.78||4.65||1.00||1.20||0.80||0.50||0.20|
|India||Zinc Mine Production, '000 tonnes||706.00||821.00||650.00||715.00||782.93||857.30||938.75||1,027.93|
|India||Zinc Mine Production Volumes, % y-o-y||-10.97||16.29||-20.83||10.00||9.50||9.50||9.50||9.50|
|Mexico||Zinc Mine Production, '000 tonnes||660.00||680.00||710.00||728.46||748.13||769.08||791.38||815.12|
|Mexico||Zinc Mine Production Volumes, % y-o-y||2.64||3.03||4.41||2.60||2.70||2.80||2.90||3.00|
|Peru||Zinc Mine Production, '000 tonnes||1,320.00||1,420.00||1,300.00||1,326.00||1,365.78||1,406.75||1,434.89||1,477.94|
|Peru||Zinc Mine Production Volumes, % y-o-y||-2.22||7.58||-8.45||2.00||3.00||3.00||2.00||3.00|
|United States||Zinc Mine Production, '000 tonnes||832.00||825.00||780.00||781.95||782.73||782.34||780.78||778.04|
|United States||Zinc Mine Production Volumes, % y-o-y||6.12||-0.84||-5.45||0.25||0.10||-0.05||-0.20||-0.35|