November/December 1989
Speakers at ISRI’s Lead/Zinc Roundtable expressed bullish expectations and saw little downside risk for these metals in the near term.
By Robert J. Garino
Robert J. Garino is director of commodities for the institute of Scrap Recycling Industries, Washington, D.C.
A look back at the 1988 Lead/Zinc Roundtable sponsored by the Institute of Scrap Recycling Industries recalls a bullish sentiment surrounding the lead and zinc industries. As autumn neared, North American lead producers were consolidating their list tags at 38 cents per pound amid reports of healthy orders from the battery sector and supply tightness. This upward trend prevailed for the balance of 1988. Meanwhile, zinc prices were also on the move as North American producers upped their quotes to 69.5-70.5 cents per pound for special high grade (SHG) zinc. And, as with lead, there would be even higher list prices quoted before 1988 ended.
But what about 1989? In some respects, this year's Lead/Zinc Roundtable, held in Chicago in September, was also a confirmation of bullish expectations. Arguably, factors underpinning lead and zinc were different than a year ago, but, similar to 1988, most saw little downside risk for the balance of the year. The lead market in particular was termed very solid, at 42.0 to 44.0 cents per pound. Zinc was termed steady but on the defensive following North American producer price cuts to 80.0-80.5 cents per pound for SHG.
This year's speakers, representing primarily metal fabricators and scrap consumers, looked at their respective metals and markets and offered comments on the future.
Solder as a Low-Profile Industry
L.D. Vern Kramer, president of Kester Solder, Des Plaines, Illinois, described the solder industry as low-profile but emphasized that solder is a product industry "can't do without." He credited the unique metallurgy associated with melting tin-lead alloys as part of the reason that there are no ready substitutes for solder.
It is in the electronics industry where lead's growth potential is most likely, according to Kramer. Many of the more traditional end-use markets such as auto bodies, radiators, canning, and plumbing applications have given way to substitution or economy. Although the electronics industry also has felt the effects of competing materials and miniaturization, new techniques that use solder pastes in connecting and securing electronic components to circuit boards may ultimately expand the market for tin-lead solders.
Lead Recovery: Batteries Leading the Way
Alan Kafka, manager of base metal sales, Asarco, Inc., New York City, reported that the output of refined lead in the free world rose from 3.8 million short tons in 1975 to 4.7 million short tons by 1988. At the same time, the free-world secondary sector has been gradually increasing its share of total output. In fact, according to Kafka, 1988 world refinery production of secondary lead reached a record 2.86 million tons, or 45 percent of world demand. The secondary sector is even more important in the United States, he said, where secondary lead has increased from 47 percent of domestic refined lead output in 1975 to more than 60 percent. of the total supply last year.
Secondary refined lead is largely a result of lead reclamation from spent lead-acid batteries. Since the United States accounts for one-third of the free world's population of vehicles, Kafka said it is not surprising that the supply of spent batteries, and the capacity to reclaim those batteries, is concentrated in this country. While profit-margin considerations drove battery recycling rates in the past, he believes there is a growing concern that environmental damage occurs if spent batteries are not recycled promptly. Consequently, the rate of battery reclamation will no longer be permitted to respond only to market conditions. Instead, he said, spent batteries will be forced by government regulation back through the recycling chain, regardless of the economic consequences. While the secondary sector may have acted as a market balancing force in the past, Kafka stated that this action will increasingly fall to the primary sector in the future.
In spite of what he termed "premature obituaries" on lead usage, Kafka observed that world consumption of refined lead has continued to grow for the past six years, from just under 4.2 million short tons in 1982 to slightly more than 4.7 million short tons in 1988. During this same period, according to Kafka, lead consumption in the United States remained virtually flat at between 1.2 million and 1.3 million tons annually. However, the lack of demand growth in these markets was offset by steady increases in the use of lead for automotive and nonautomotive batteries. Kafka said that in 1988, the battery market accounted for 79 percent of all domestic lead consumption and nearly 60 percent of free-world lead consumption. He stated that the lead industry is becoming a one-product industry, "with all the risks associated with that kind of concentration."
Kafka expects the free-world lead market to be largely in balance through 1989, then shift into a large surplus in 1990: Consumption will fall modestly in the face of weaker world economies, and production will continue increasing and result in a surplus.
Galvanizing Prospects Bright
Larry L. Parkinson, vice president and general manager, Interamerican Zinc, Inc., Adrian, Michigan, noted that, at 60-tons-per-day processing capacity, Interamerican Zinc is currently the largest U.S. producer of continuous galvanizing-grade slab zinc recovered from dross. Its patented zinc recovery process was developed in Spain and it is the only plant with this technology in the Western Hemisphere.
Parkinson said the future of galvanizing and the supply of continuous galvanizing dross "appear to be improving" as domestic demand for galvanized steel continues to increase. He estimated that present domestic capacity for galvanized steel is around 10 million tons per year. Domestic production of galvanized steel in 1988 was 8.1 million tons, compared to 7.6 million tons in 1987, while the market share for zinc used for galvanizing has increased from 45 percent in 1979 to 51 percent in 1988. In addition, total domestic zinc consumption increased from 1.00 million metric tons in 1979 to 1.11 million metric tons in 1988, with galvanizing accounting for the total increase of 111,000 metric tons.
Parkinson noted that additional domestic galvanizing capacity is under construction or planned by several domestic steel companies. He believes the two major factors that will affect the growth of galvanizing and zinc consumption by galvanizers are the strength of the U.S. economy, which results in demand for galvanized steel, and the price of zinc. He warned, however, that zinc prices today are "too high to promote a continuing increase in domestic zinc consumption." He feels that current high zinc Prices will encourage substitution of plastics or other coatings for galvanized steel and thus will be "self-defeating for the primary zinc producers.
Dross Prices to Moderate?
As for future supplies of zinc dross, Parkinson believes additional continuous galvanizing capacity will result in an increasing supply of dross. However, the price of dross in the near future also will be affected by the zinc recovered from processing electric-arc-furnace flue dust. The zinc recovered from flue dust has the potential to supply 5 percent of domestic zinc consumption, according to Parkinson.
In conclusion, he expects dross supply to increase and dross prices to "return to the historical 50 to 55 percent of market price. " At the same time, he believes lower dross prices will promote more recycling of dross into zinc metal, because of the cost savings.
Zinc Consumption and Furnace Dust
L.C. Burkhalter, president and CEO, Jersey Miniere Zinc, Clarksville, Tennessee, provided an overview of world zinc fundamentals from a producer's point of view. He pointed out that U.S. producer inventories have remained well below monthly average production rates, stating that the zinc produced "is moving out essentially as it comes out of the furnace." Consumer stocks of slab zinc are also under one month's inventory.
Burkhalter said galvanizing has continued to increase its share of total consumption, with alloys remaining relatively level and brass showing a slight increase. The United States is still the largest consuming nation, with more than 1 million tons (approximately 20 percent of the world's production), versus nearly 800,000 tons for Japan and more than 500,000 tons for West Germany. He pointed out that present projections of increases in domestic slab consumption range from 1 to 3 percent.
Burkhalter believes the total quantity of electric-arc-furnace zinc dust available in the United States is approximately 550,000 tons per year and he anticipates a growth rate of 5 percent per year through 2000. He believes recovery of 550,000 tons of this material would produce approximately 110,000 tons of zinc for reuse, "equivalent to a mine producing 183,000 tons annually of concentrates, with a zinc content of 60 percent."
Zinc Market in Close Balance
Burkhalter observed that the nonsocialist world's zinc consumption peaked in 1973 and did not reach that level again until 1986. However, since 1986, consumption has been increasing at an annual rate of from 1 to 3 percent, with indications that this growth rate will continue through 1989 and 1990. He did note that there is some concern that a shortage of supply and resulting high prices will slow the contemplated growth rate. Further, at higher prices, the search for substitute materials intensifies, detrimentally affecting total consumption.
Burkhalter sees the balance between zinc production and consumption in 1988 and 1989 as "relatively close," with projected increases in production of about 100,000 tons in 1989, 125,000 tons in 1990, and 170,000 tons in 1991. "Assuming present consumption rates," Burkhalter believes these increases in production "would help to maintain a close balance between production and consumption" in the near term. •