China's MMG says zinc demand growth higher than expected

MELBOURNE Wed Aug 20, 2014 11:40pm EDT

MELBOURNE Aug 21 (Reuters) - China's MMG Ltd, owner of the world's third-biggest zinc mine, said the global deficit in the metal had increased faster than expected, spurred partly by demand growth in China to rust-proof steel for cars.

The global zinc market deficit expanded to 234,000 tonnes in the first six months of 2014, from a surplus of 28,000 tonnes in the same period last year, according to the Lisbon-based International Lead and Zinc Study Group (ILZSG).

"Growth has been higher than expected," MMG Chief Executive Andrew Michelmore said on Thursday, referring to demand.

He said demand in China had picked up as companies sought galvanizing technology, following a push by the International Zinc Association to tout the benefits of coating steel with zinc to prevent rust.

"The reaction has been quite spectacular," said Michelmore, who is also chairman of the International Zinc Association. "That's having a flow-on effect in the demand for zinc."

London Metal Exchange three-month zinc prices have climbed 14 percent this year to $2,352 a tonne.

However, on the supply side, Michelmore said smelters had produced zinc flat out over the past few years to lower their unit costs amid a price slump, which beefed up stocks of the metal and has led to some softening in demand for zinc in concentrate.

"I think we'll see that come back as the impact of the mines that have been shutting down really have an impact on the market," Michelmore told analysts and reporters on a conference call after MMG reported its half-year results.

MMG's Century mine is expected to run dry in 2015, removing about 5 percent of global supply. (Reporting by Sonali Paul; Editing by Muralikumar Anantharaman)