Added analysis and context
Swedish metals producer Boliden is set to close its Tara zinc mine in Ireland as a result of financial losses caused by low zinc prices, high energy costs and inflation, the producer said yesterday.
The underground mine will be placed under maintenance until further notice, Boliden said. Its approximately 650-strong workforce will be laid off temporarily.
Tara is Europe's largest zinc mine, yielding over 2mn t/yr of ore for production of zinc and lead concentrates. Boliden said it is working to extend Tara's mine life and ensure it remains competitive.
The closure follows a fire at the company's Ronnskar smelter in Sweden, which destroyed a cell house. Ronnskar will be off line for a few weeks.
Zinc grades recovered in Tara have been declining, Boliden said. It estimated the grade at 4.7pc in the second quarter.
Shutdown highlights Europe zinc crisis
Zinc prices have been falling globally since earlier this year because of weak demand, particularly in Europe. Further pressure on prices has been applied by the reopening of some zinc smelters in the continent after they were closed last year because of high energy costs.
The three-month zinc contract on the London Metal Exchange hit a peak of $3,485.50/t in late January, but slid by nearly 36pc to reach a bottom of $2,236.25/t in May. Zinc prices are still hovering well below $2,500/t, threatening the margins of mining firms.
Demand has also been weak in China, which has meant that Beijing — traditionally a net importer of the metal — has been exporting it to Europe.
And with Chinese demand absent, zinc from other Asian suppliers — including Vietnam, India and Japan — has been diverted to Europe at lower premiums relative to what European producers can offer.
Poor demand and competition from imports has weighed on premiums in Europe, but still-high power prices and limited supply have kept prices sustained at historically high levels. The Argus assessment for the special high-grade zinc in-warehouse Rotterdam premium was at a multi-year high of $525/t throughout February and early March this year. The assessment has fallen by 24pc since 6 March, to $405/t, with isolated trades heard done as low as $300/t in recent weeks.
Even that lowest outlier price is more than double the range at which European zinc premiums traded during the decade prior to the Covid-19 pandemic. The Argus SHG in-warehouse Rotterdam premium assessment averaged around $135/t from its inception in August 2013 to the end of 2019.
High treatment charges are also adding to the woes of metal-producing companies. The annual benchmark zinc treatment charge rose by 19pc on the year to $274/t in 2023 because producers are vying for limited smelter capacity.
The concern for the European market is that power costs are not falling as rapidly as the drop in demand, which is creating a feedback loop in which producers such as Boliden are forced to cut capacity. This will further reduce zinc availability and keep premiums and prices supported despite consumers' low appetite, which in turn will threaten consumer margins. This combination of higher costs and low demand might force more zinc producers to close operations.
