THE SMELTER SEGMENT - ALTERNATIVE STRATEGIES FOR A STRUCTURALLY CHALLENGED INDUSTRY.

摘要

In analysing the zinc smelting segment I have attempted to demonstrate that the market works just fine (fine means that it works, not that it is kind to participants!) and that the industry is not structurally challenged. In a free market economy nothing will ever prevent price cycles. In this case the price cycle for the smelters has more to do with the zinc concentrate treatment charge, i.e. the concentrate market balance, than the zinc metal price, i.e. the metal market balance. If there is a problem, it is caused by the (over)production of zinc metal, for customers that do not exist, yet happily financed by investors (for example in LME stocks). One option that the industry has already tried is to introduce larger escalators and de-escalators into frame contracts for raw materials, in the hope that smelters, now being more sensitive to the zinc price, will cut production when the zinc price falls. The aim would be for mines and smelters to have a common purpose in supplying real, rather than imaginary, zinc metal customers. These changes have been far too small to have any significant effect. And, as it is the treatment charge that changes with the price escalators/de-escalators and not the tonnage of concentrates to be delivered under the contract, why should this affect the production of metal?