Zinc producers ride economic rebound in auto, construction sectors

Mined zinc output from the world's top 20 producers climbed 23.5% year over year to 1.38 million tonnes during the second quarter as production rebounded from the pandemic-driven lows of 2020.

Companies said the continued economic recovery worldwide drove demand for zinc, a metal often used in construction and transportation sectors. After mining companies produce zinc in concentrate, the material goes to smelters for refining.

However, the amount of mined zinc, or zinc in concentrate, produced by the top companies remained flat between the first and second quarters, slipping by just 0.1%, according to an S&P Global Market Intelligence analysis. Several major producers reported slowdowns due to pandemic-related labor shortages and higher materials costs.

Demand grows on Chinese, European auto production

Market Intelligence analysts expect China to be responsible for over half of global zinc consumption in 2021, largely thanks to demand from zinc end-users like vehicle manufacturers and construction. Between January and July, Chinese automotive production climbed year over year by 17.4%.

Europe, too, devoured plenty of zinc, as automotive production surged in the first six months of 2021 by 25.2%.

But analysts see warning signs that the pace of automotive production could be easing, which could affect zinc demand. Chinese vehicle production dipped 15.4% year over year in the month of July, Market Intelligence analysts said in the August report.

Market Intelligence recently revised its annual zinc market surplus to 68,000 tonnes from 105,000 tonnes. Reduced surplus along with power rationing and supply constraints in China led analysts to upgrade the average London Metal Exchange three-month zinc price estimate to $2,875 per tonne for the year from $2,852/t.

"A slightly tighter supply forecast for 2021 and the low inventory levels at the major exchanges have led us to upgrade the forecast," analysts Aline Soares and Mitzi Sumangil said in an August report.

What's more, the infrastructure bill passed by the U.S. Senate in August led analysts to lower estimates of U.S. zinc demand between 2021 and 2025.

"The approved spending of $1 trillion was roughly half of President Joe Biden's initial proposal," the analysts explained.

Strategists at Macquarie Research expect zinc in concentrate supply will be relatively squeezed for the remainder of this year, before entering a surplus in 2022 and balancing out by 2025.

"We expect the main zinc consuming countries outside China to return to their 2019 pre-Covid demand levels by 2022 following a strong recovery this year, after which demand growth will moderate to slower trend levels," Macquarie strategists said in an Aug. 3 note.

Glencore production up

Mining giant Glencore PLC maintained its rank as the No. 1 zinc producer worldwide, producing 299,200 tonnes of the metal in the three-month period, up 17.6% year over year.

"The restart of manufacturing economic activity resulted in a strong demand environment for zinc metal, particularly in steel production," the company stated in its half-year report. "A number of zinc metal consumers underestimated the extent of the recovery, which meant they needed to source additional metal in the spot market, driving up premiums."

However, the company lowered its 2021 zinc production guidance by 7% to about 1.2 million tonnes due to a slower than anticipated start at its new zinc and lead mine in Kazakhstan, commissioned in May.

Meanwhile, the second-highest quarterly zinc producer, India-based Hindustan Zinc Ltd., saw a year-over-year increase of 9.4% to 170,170 tonnes in the June quarter. Hindustan Zinc is 65%-owned by Vedanta Ltd.

The company saw quarter-over-quarter production decline by 23.3% as it faced labor shortages due to COVID-19 and lower ore grades, according to a second-quarter earnings release. Steeper costs of coal, diesel, cement and power also affected the company's performance during the June quarter, according to a July 22 company report.

High commodity prices pushed up the cost of production for its zinc operations in India by about 5% from the prior-year period, according to financial documents.

"We do recognize the headwinds from rising input commodity prices and are doubling our efforts to address them through long-lasting structural cost initiatives," Vinaya Jain Sr., Hindustan Zinc's senior VP and head of finance, said in a statement.

Teck Resources Ltd. witnessed a surge in zinc production during the second quarter, compared to the same period in 2020, with output jumping 78.7%, the largest production increase among the top producers analyzed in the June quarter.

The approximately 67% increase in zinc production at Teck Resource's Red Dog mine in Alaska led the Canadian producer to boost its 2021 annual zinc in concentrate production guidance by 20,000 tonnes to a range of 605,000 tonnes to 630,000 tonnes. In a first-quarter earnings call, CEO and President Donald Lindsay called the Red Dog mine the "crown jewel" of Teck's zinc assets.

Zinc could also play a key role in achieving a low-carbon future, given its applications in wind and solar power. In an effort to capitalize on the energy and transportation sectors pivot to electrification, Teck Resources has said it plans to look at opportunities to produce copper, in addition to leveraging its existing zinc assets.

"Accelerating copper growth is the cornerstone of our strategy," Lindsay said on the July 27 call.

Canadian mining company Hudbay Minerals Inc. recorded the largest year-over-year decline in output, in terms of percent change, as production slipped 31.0% to 21,538 tonnes during the second quarter. Hudbay Minerals also produces copper, gold, silver and other metals.

"Overall production in Manitoba in the second quarter was lower than the first quarter, primarily as a result of COVID-19-related absences and interruptions at our Snow Lake and Flin Flon operations, a scheduled maintenance shutdown at Lalor Lake and a temporary suspension of operations at Lalor at the end of June for the investigation of the fatal incident," said CEO and President Peter Kukielski during an Aug. 10 earnings call.

The China-based company Zijin Mining Group Co. Ltd. reaped the benefits of robust demand for zinc too, with its second-quarter production jumping by 37.1% year over year. Zijin Mining Group reported pumping out 100,103 tonnes of zinc between April and June. The company is the largest zinc producer headquartered in China.

Peru zinc production soars by 53.3% YOY in H1

Peru is the leading producer of zinc outside of China, and zinc production in the South American nation soared 53.3% year over year between January and June. During the corresponding period in 2020, COVID-19 restrictions severely curtailed production. Luxembourg-based Nexa Resources SA saw zinc output surge by 30.8% year over year in the June quarter to 81,600 tonnes. The company recently restarted the San Gerardo mine at its Atacocha zinc operation in Peru, following the suspension of a blockade by local community members. Zinc production also increased at the Cerro Lindo and El Porvenir mines.

Market Intelligence analysts said the growth rate in zinc production will likely stabilize in Peru in the second half of 2021, as companies continue to recover from the pandemic and a limited amount of new production comes online.

Mine production at Nexa Resources' Extremo Norte mine in Brazil, remains suspended amid concerns about the structural stability of the mine, according to the company. Nexa Resources anticipates mining activity will begin to restart in the first quarter of 2022.

"We will replace what Extremo Norte would produce in 2021 by more production coming from the main mine, the Vazante mine," said CEO Tito Botelho Martins.