Great Trades

As we mentioned in December, "the world's biggest zinc mine, Teck Cominco's Red Dog in Alaska, had some delays in shipments in Q3, increasing their Q4 shipments significantly." We expected that "the effect of the Red Dog shipment spike will last into Q1."

Today, in their Q4 earnings report, Teck Cominco reported that 60,000 extra tonnes were sold from Red Dog in the 4th quarter vs. a year ago: "These sales volumes were 60,000 tonnes higher than the same period a year ago as poor weather at the port delayed loading in the third quarter, shifting some sales into the fourth quarter." "Sales of metal in concentrates are recognized in revenues when title transfers and the rights and obligations of ownership pass to the customer, which usually occurs upon shipment."

The 60,000 tonne one-time increase in Q4 (that had been shifted from Q3, which had a steeper than normal LME stocks downtrend) has been pretty well absorbed by the world zinc market the last few months, with only a slight blip up in LME stocks of about 15,000 tonnes during the longer term downtrend:




After factoring in the delay from the time Red Dog ships the concentrate to the time it gets refined sold into the market by the smelters, it seems the temporary surge from these delayed shipments should be nearing an end. Considering the effect of these delayed 60,000 tonnes, it appears clear that the underlying supply/demand deficit is still intact in the zinc market, despite what the zinc bears and the media may say.

As we stated last time regarding these Red Dog shipments and the temporary surge from the ending of Chinese export tax rebates, "After the short term surge in supply from these 2 temporary events is absorbed by the market, we expect zinc to remain very strong because of the dearth of sizable projects in the pipeline for the next few years combined with growing demand and depletion of reserves at existing mines. We believe the fears in the market that the recent short-term trend change in zinc LME inventories could indicate a permanent shift in the supply/demand situation are misguided, and we expect that to become apparent in coming months. If the downtrend resumes as we expect, we believe the only way the LME Zinc inventories will avoid complete depletion is with zinc prices increasing enough to curtail demand."