Zinc Prices Have Rallied So Much Even Miners Are Complaining

(Bloomberg) -- Zinc's dramatic surge to the highest in a decade might boost profits in the short term but isn't all good news for producers, according to Vedanta Resources Plc.

Buyers are struggling to make money at current levels after prices more than doubled since the start of 2016, Deshnee Naidoo, the chief executive officer of the company's Vedanta Zinc International unit, said in an interview.

“The whole market is out of whack,” Naidoo said in Johannesburg on Thursday. “In the short term it's a good price, but it's not a sustainable price. There needs to be an incentive price for galvanizers, alloy producers, smelters.”

The market has tightened following supply cutbacks and tougher Chinese curbs on mining. Glencore Plc, the top producer, has curtailed output at mines in Australia and Kazakhstan, and made a further wager on zinc on Tuesday when it announced plans to increase its stake in Peru's Volcan Cia Minera SAA.

Zinc hit $3,308.75 a metric ton on Wednesday, the highest since 2007, and traded at $3,296.50 on Friday. Vedanta, which controls top-three producer Hindustan Zinc Ltd., is happy to benefit from the high prices in the short term, Naidoo said. However, $2,500 to $2,800 would be a more sustainable level, she said. That would allow customers to raise profit margins and therefore usage.

“It's not a price we would expect to see in the market for the long term,” Naidoo said. “If we don't sell a product people can use and make money out, of we're going to have problems.”

Glencore Gets What It Wants With Zinc Market Tightest in Years

Vedanta is on track to begin production at its new Gamsberg mine in South Africa in the first half of 2018, Naidoo said. After a six- to nine-month ramp-up, the operation will produce about 250,000 tons of metal in concentrate, helping to ease the global shortage. Operating costs at the mine are estimated at $1,100 a ton, putting it in the lowest quarter of producers, she said.

To contact the reporter on this story: Kevin Crowley in Johannesburg at kcrowley1@bloomberg.net.

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Liezel Hill, Jake Lloyd-Smith