Zinc prices climbed on Wednesday to an 18-month high after Vedanta suspended mining at its Gamsberg zinc mine in South Africa following an accident that trapped ten workers.
Vedanta Zinc International (VZI) noted the mine will stay closed until further notice while a search continues for two miners still missing after the incident.
The news comes in a zinc market where mine supply is already tight due mainly to restrictions to help slow the spread of covid-19.
Benchmark zinc on the London Metal Exchange (LME) was up 2% at $2,743.50 a tonne at 12:15 local time, after reaching $2,770, the highest since May 2019.
Prices for the metal, used to galvanize steel, have surged more than 60% from a low in March as industrial activity in top consumer China rebounded from coronavirus closures.
Benchmark zinc has been the best performer on the LME since the start of October, rallying about 18% compared with 11% for copper.
Colin Hamilton, commodities analyst at BMO, says there is a dichotomy between an apparently tight concentrate market and a well-stocked refined market.
“In many ways, this is a very similar situation to that seen in 2016 following depletion of major mines, and following which the zinc price doubled from trough to peak,” Hamilton wrote in a note to investors last week.
Even before Wednesday’s accident at Gamsberg, BMO was forecasting that the zinc concentrate market would remain in deficit through early 2021 at least. The duration of such undersupply, the bank has said, would depend mostly on when the refined market excess passes back up the chain via lower smelter output.
“We have some Chinese mine supply growth from new operations but feel environmental pressures at existing mines will lead to steady depletion,” Hamilton said.
The Gamsberg mine opened in early 2019. VZI is the majority owner with a 69.6% stake, while Exxaro Resources holds a 24.4% interest. The remaining 6% is held by the Employee Share Ownership Plan.
At full production capacity in phase 1, Gamsberg will produce 250,000 tonnes a year of zinc in concentrate, according to the VZI website.
Vedanta’s mine suspension comes on the heels of news revealing that a pile-up of hidden zinc stocks in Spain is partially to blame for shortages in China and the ongoing price rally.
Stocks not held in exchange warehouses have climbed in several countries, but the stand out is in Spain, where a major smelting operation is located, Reuters reported on Wednesday.
Glencore (LON: GLEN), the owner of the San Juan de Nieva smelter in Spain — one of the world’s largest — declined to comment on whether it was piling up zinc.