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Home My WebLink AboutBilliton Metals Ltd Report On The Lead & Zinc Markets 1995 LEAD & ZINC Market Report = Billiton Metals Limited PREPARED BY ANGUS MACMILLAN AND KAREN NORTON The authors gratefully acknowledge the invaluable assistance given to them in compiling the appendices of this report by their colleagues in Billiton International Metals. © 1995 ISBN 1 85580 016 0 Billiton Metals Ltd 84 Fenchurch Street London EC3M 4BY SFA MEMBER This document is for information purposes only. Under no circumstances should it be used or considered as an offer to sell or a solicitation of any offer to buy the commodities mentioned herein. The information contained in this document has been obtained from sources believed to be reliable and whilst reasonable care has been taken to ensure that facts stated are accurate no warranty or representation is given that it is accurate or complete, and it should not be relied on as such. Where commodities are referred to in this document are denominated in currencies other than pounds sterling, changes in the rates of exchange between currencies may cause the value of investments in the commodities to diminish or to increase. Past performance of investments is not necessarily a guide to future performance of investments and investing in the commodities mentioned herein involves risk and may involve substantial losses. An investor must carefully consider whether such investments are suitable in the light of his circumstances and financial resources. Any transaction in the commodities mentioned in this document which is not effected on a Recognised Investment Exchange will only be suitable for a person with experience in transactions of the kind in question. When considering investment in the commodities mentioned, an investor should bear in mind that he may lose not only his initial investment (the funds placed by way of margin or deposit with his broker) but may also incur a liability to pay additional amounts later (eg. by deposit of additional margins or following liquidation of his investment at a loss when he will be liable for any resulting deficit.) Billiton Metals Ltd, or its affiliated companies may hold trading positions in the commodities mentioned in this document, or in options and other derivative instruments based on these commodities. It is possible that employees of Billiton Metals Ltd or its associate companies may disagree with the opinions expressed in this document. Billiton Metals Ltd may make a market or deal as a principal in the commodities mentioned in this document, and it or its affiliated companies may trade in the physical market for these commodities. In addition the research in this document has been procured by us for our own purposes and may be acted upon by us for our own purposes and has not been procured for the exclusive benefit of clients. CONTENTS SECTION I SECTION II SECTION III SECTION IV SECTION V SECTION VI APPENDICES APPENDIX I APPENDIX II APPENDIX II APPENDIX IV APPENDIX V APPENDIX VI BILLITON METALS LTD REPORT ON THE LEAD AND ZINC MARKETS FEBRUARY 1995 SUMMARY THE CONSUMPTION OF LEAD AND ZINC Underlying trends . THE CONSUMPTION OF REFINED LEAD Storage batteries Electric vehicles Other battery markets Other end-uses THE CONSUMPTION OF REFINED ZINC Galvanising Other end-uses OUTLOOK FOR LEAD AND ZINC CONSUMPTION Economic outlook Demand outlook THE PRODUCTION OF LEAD AND ZINC Recent trends in mine production Recent trends in refined lead production Recent trends in refined zinc production Secondary production Concentrate balances and treatment charges Outlook TRADE STOCKS AND PRICES CONCLUSIONS LEAD MINES LEAD SMELTERS LEAD REFINERIES ZINC MINES ZINC SMELTERS SMELTERS AND REFINERIES IN THE FORMER EASTERN BLOC PAGE 13 14 19 31 32 40 45 47 51 59 68 71 75 79 87 93 I SUMMARY The table below presents our forecasts of lead and zinc prices for the current year on a quarterly basis, together with annual average forecasts for 1996. Three cases are presented which attempt to take account of possible changes in the supply/demand environment for the metals. Comprehensive supply/demand balance tables are presented in Section VI of the report. Price forecasts for lead and zine (LME cash price, US cents/lb) Actual 1992 1993 1994 Year Year Year Qi Q2 Lead Optimistic case Base case Pessimistic case Zinc Optimistic case Base case Pessimistic case In our view the economic outlook facing the lead and zinc markets is better now than it has been for some years. During the course of 1994 it became increasingly clear that the period of unsynchronised growth, which had characterised the major industrialised economies during the early years of the decade, was in the process of giving way to a period of more concerted activity. Although the rate of growth of industrial activity in North America will almost certainly slow down, following a number of interest rate increases by the US Federal Reserve, this should be more than offset by the ongoing recovery in continental Europe and the incipient rebound in Japan. Also, a number of economies outside the OECD area, particularly those of South East Asia, have considerable scope for further growth. Overall, then, we believe that industrial activity in the West will continue to expand strongly throughout the forecast period. Not only will the demand for both metals benefit from the expected increase in the underlying level of economic activity in the world economy, but they will also gain from the strength of a number of metal-intensive areas, such as construction and automobiles. Also, the intensity of their use will grow further in a number of important sectors. For example, demand from the battery sector will continue to underpin lead demand, while more and more zinc will be employed in galvanising. The significance of these trends is highlighted in Section I of the report. Billiton Metals Pagel Base case forecasts (probability weighting 65%) Our base case forecasts assume that demand for both metals continues to rise both this year and next. Lead consumption in the West rebounded sharply in 1994, and the rates of growth we are projecting in 1995 and 1996 are somewhat more modest although still above recent trend rates. On the other hand, we believe that zinc will record its highest rate of growth in the current cyclical upturn during the present year. The rationale for these assumptions is noted in some detail towards the end of Section II of this report. We further assume that the production of both metals will be constrained, during the current year at least, by a combination of concentrate shortages and deliberate restraint on the part of the smelters further forward. However, rising mine output, coupled with higher prevailing prices will make restraint increasingly difficult. Although the West will remain a net importer of both metals, our base case suggests that these volumes will decline during the forecast period. Section IV elaborates on trade developments. As our supply/demand balance tables (pages 93 and 95) indicate we expect both metals to record significant deficits over the forecast period, although the drawdown we envisage for zinc stocks would still leave them uncomfortably high throughout the forecast period, given the extent of the current overhang. Optimistic case forecasts (probability weighting 25%) There is the possibility that demand growth could outstrip our base case forecasts, and in this event the drawdown in stocks would be more marked and the resulting impact on prices greater. Although producers would undoubtedly respond to higher prices we uestion their ability to do so quickly enough to prevent a significant rawdown during the current year. We must also consider the possibility that exports to the West, for whatever reasons, could fall short of our base case forecasts. There is a strong possibility that both metals could benefit from a renewed influx of fund buying, particularly zinc which is "cheap" relative to the rest of the complex, having lagged in the general revival experienced in 1994. Pessimistic case forecasts (probability weighting 10%) As our probability weighting indicates we believe that the downside tential for these metals is rather more limited than the upside during the orecast period. Certainly we are reasonably confident of the good demand outlook. The major threat to the forecast is in our view the possibility that production will rise more quickly than we expect. Not only, could mine restarts and expansion come onstream more quickly, but there is the prospect that smelters could revert earlier cutbacks. However, the impact of any such developments would be felt mainly in 1996. There is also the possibility that net exports to the West could be higher than our base case envisages. Billiton Metals Page 2 Further ahead for lead Having recorded a very respectable annualised rate of growth of 4.0% during the period 1960-1973, lead demand slowed markedly thereafter as a result of the two oil- induced recessions. Between 1979 and 1993 lead consumption rose at a meagre 0.5% per annum. However, we are confident that the prospects for this metal are somewhat brighter for the next decade or so. Our confidence is based on a number of factors:- ¢ Although there are no significant new applications for lead on the horizon (as far as we are aware), the simple fact is that demand from its major end-use, in the form of lead-acid batteries will continue to underpin this market. In 1993, according to figures published by the International Lead and Zinc Study Group (ILZSG) storage batteries accounted for some 66% of lead consumption in the West, compared with 49% in 1979. In our view this upward trend is set to continue. Not only is the underlying trend in automobile production firmly positive (although of course it is subject to cyclical variation), but the rise in vehicle population, and therefore, the demand for replacement batteries is inexorable. ¢ We also believe that the decline in the metal's use in other sectors during the period 1979-1993 has pretty much run its course and that the scope for further reductions is therefore limited in most other applications. ¢ Another potentially positive factor is the ongoing strength of demand in the non-mature economies (although in several cases the term is now something of a misnomer) which increased their share of the West's lead consumption from 14% to 24% between 1979 and 1993. ¢ Further ahead still one potentially huge area of demand growth for lead-acid batteries is the electric vehicle (EV) market. Prompted by a clean air programme in Los Angeles, and subsequent legislation by the California state government, most of the major automobile producers have plans at various stages of development, to produce a commercially viable electric vehicle or vehicles. Although the timing of the individual EV programmes is a matter for some conjecture, the concept now appears to have enough momentum to become a reality, given the commitment of the automobile industry and the support of a number of government-backed bodies worldwide. It seems certain that the first generation of EVs, be they pure or hybrid in form, will employ lead-acid batteries as their power source. ¢ In the case of production more and more producers are switching to secondary feed and by the end of the 1990's the secondary industry is likely consistently to account for around 55% of total refined lead production. Overall, then, we believe that a combination of strong underlying demand from the lead-acid battery market, coupled with the ongoing strength of the maturing economies of South East Asia, will accommodate a somewhat faster rate of demand growth over the next decade or so than that recorded in the period following the second oil crisis. While we do not envisage a return to the halcyon days of the 1960's we believe that an underlying rate of growth of 1.5-2.0% is achievable. Of course the widespread acceptance of electric vehicles further forward would render this estimate rather conservative. Billiton Metals Page3 Further ahead for zinc The impact of the first oil-induced recession was even more dramatic on zinc demand, which, having increased at an annual average rate of 5.3% between 1960 and 1973, between 1973 and 1975 slumped from just under 5 million tonnes to 3.5 million tonnes. Following the second oil-induced recession zinc demand in the West grew by just 1.0% per annum. As with lead, however, we believe that the underlying rate of growth will improve on this rather unimpressive performance. Again there are a number of factors which lead us to this conclusion :- ¢ Zinc, like lead, has also come increasingly to rely on a single end-use for its growth since the last cyclical peak in 1979. In 1993 galvanising accounted for some 48% of total Western zinc consumption, compared with 41% in 1979. Although the construction industry remains the largest end-use market for galvanised products, the 2.2% average annual growth rate over the period was largely fuelled by demand from the automobile industry, as manufacturers worldwide invested considerable resources in increasing the durability of vehicle structures. One of the most important measures adopted was the introduction of zinc coated steels in a variety of forms. The international steel industry has greatly increased its galvanising capacity in recent years in order to meet the projected further growth in demand from the automobile industry for zinc-coated products. ¢ Zinc consumption in its other end-uses did not suffer particularly badly as a result of the oil-induced recessions. Consumption in brass and bronze and alloys (its second and third most important end-use markets) declined by only 0.5% and 0.3% per annum respectively between 1979 and 1993, while semis and chemical uses rose by 0.7% and 0.4% between those years. In most of these end-uses there is in our view little by the way of serious downside potential, and in most demand will respond to cyclical changes in the economic environment. ¢ As with lead the role of the so-called non-mature economies remains a potentially positive one. In 1993 these countries accounted for some 27% of total Western zinc consumption, compared with 19% in 1979. The ongoing infrastructural requirements of these countries, coupled with the expansion of their automobile industries in a number of notable cases, will ensure that their - share of consumption continues to expand. ° In terms of production a number of mines have been forced to close in recent years because of depleted reserves. However, mine production capacity is set to pick up again in coming years and we do not envisage any threat to refined output. : Overall, then, we believe that the growth of zinc consumption in the next decade or so will outstrip its rather poor performance over the past fifteen years. We believe that a growth rate similar to that of lead of around 1.5-2.0% is achievable. Unlike lead, however, the future does not hold out the prospect of a potentially huge growth market. It has been mooted that the use of zinc-bromine batteries in EVs could become widespread, but we do not hold to this view. Indeed, the possible growth in the use of aluminium body panels in automobiles poses a serious threat to zinc's major growth market towards the end of the decade and beyond. Billiton Metals Page 4 II THE CONSUMPTION OF LEAD AND ZINC Underlying trends In 1960 the consumption of both lead and zinc in the West was more or less equal at just below 2.5 million tonnes. Between then and 1973, just before the onset of the first oil-induced recession, the fortunes of the two metals varied. Over the period zinc consumption rose at an annual rate of 5.3%, whereas lead consumption increased at a rather more modest, but nonetheless still respectable, 4.0%. In 1973 zinc consumption stood at just under 5 million tonnes, while that of lead totalled just over 4 million tonnes. By 1975 the consumption of both metals had slumped to around 3.5 million tonnes. As Figure 2.2 illustrates the first oil shock had a significantly greater impact on zinc consumption than on lead. To a considerable extent this reflected the tremendous slump in construction activity and automobile production (by far the major end-use industries) during the period. Not surprisingly the rebound in zinc consumption was proportionately greater than that of lead, but by 1979, at the time of the next cyclical peak, it was still lower than its 1973 peak. Zinc is the only major base metal of which this is true. Indeed, thanks to the impact of the second oil-induced recession, it was not until 1986 that zinc consumption recorded a new high. , Since 1979 the performance of both metals has been pretty woeful. Between 1979 and 1993 zinc consumption increased at a rather paltry 1% per annum, while that of lead averaged barely half that rate. In the case of both metals the slow rates of growth reflected slow increases or, in some cases, falling consumption in the major industrialised economies. Share of industrialised countries in Western world lead and zinc consumption (%) w= Lead = Zinc [Billiton Metals Page 5 Western world lead and zinc consumption 1960/1993 (thousand tonnes) Between 1979 and 1993 the consumption of lead in the mature Western economies (North America, Western Europe, Japan and Australasia) fell at an average annual rate of 0.3%, while that of zinc increased by this rate. Over that same period lead consumption in the non-mature economies (Latin America, Africa and Asia outside Japan) increased by 4.4% per annum and that of zinc by 3.5%. By 1993 these non- mature economies accounted for some 24% of lead consumption, compared with just 14% in 1979. Between those years they increased their share of Western world zinc consumption from just over 19% to around 27%. When we talk of consumption increasing in the non-mature economies we are in fact referring to strong demand growth in a few of them, rather than across the board increases. Indeed, two countries - South Korea and Taiwan - account for a considerable proportion of the growth in demand for both metals. Figure 2.3 Consumption of lead and zinc in the mature and non-mature economies (thousand tonnes) Lead f=] Non-mature Billiton Metals Page 7 Consumption of refined lead in the Western world 1984-1993 (thousand tonnes) 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 North America Canada 122 104 95 103 102 93 83 78 89 74 US 1134 1124 «= 1134 1217-1236 )=—_ 1262 1312 = 1247 1287 Total 1256 «61228 1229 1320 «1338 = «1355 1395 1325 1376 Western Europe Austria 62 62 61 54 61 62 65 67 66 Belgium 72 66 72 64 60 65 64 72 64 Denmark 15 13 15 15 7 4 4 5 4 Finland 19 24 15 13 13 13 13 12 7 France 209 208 205 207 = 216 244 255 252 246 Germany * 357 346 359 345 374 375 413 Greece 20 23 16 18 19 15 20 sui 7 Ireland 10 10 12 12 12 16 19 22 21 Italy 238 235 238 244 252 259 258 259 Netherlands 47 45 46 50 55 57 62 59 52 Norway 13 13 15 14 10 11 6 1 3 Portugal 27 26 34 28 31 26 21 24 34 Spain 107 112 123 119 135 Sweden 26 27 24 30 32 28 26 24 25 Switzerland 10 10 10 12 11 8 12 13 11 United Kingdom 295 282 288 303 301 264 264 Yugoslavia 95 145 129 130 96 90 43 Total 1622 1661 1708 = 1733 1723 Latin America Argentina 28 31 32 29 21 24 30 Brazil 64 88. 93 96 66 69 Mexico 110 77 86 164 Peru 16 19 22 19 15 14 12 Venezuela 24 28 26 19 20 23 24 Others 15 15 15 15 13 12 13 Total 257 284 288 255 312 60 77 70 75 80 75 «75 60 20 24 5B 7 2% 29 (32 36 406 «406 416 422s 40s“ 57 88 122 146 149 201 Malaysia 16 21 2 m4 2W 39 44 58 65 Philippines 9 11 Bb nl 4 16 20 25 36 Taiwan 41 59 7 75 65 70 83 101 Thailand 19 19 4 29 34 31 39 47 48 23 30 9 6 6 2 27 23 24 46 49 50 574 3 72 85 105 767 810 876 895 911 978 1008 1061 Australasia Australia 60 62 60 61 54 56 59 62 New Zealand 8 8 9 9 6 6 4 5 68 70 69 70 60 62 63 67 21 19 21 20 15 19 18 18 13 16 10 11 13 16 11 12 4 4 5 6 4 5 5 3 South Africa 49 51 56 63 66 56 54 59 Tunisia 3 5 4 4 3 3 3 3 Zambia 3 4 4 3 3 2 3 2 Others 10 11 10 10 12 11 13 15 13 Total : 98 104 109 110 119 115 114 111 110 Western World Total 3972 4026 4113 4249 4356 4427 4482 4474 4481 4495 * Prior to 1991 excludes former East Germany Source : ILZSG. Billiton Metals Page 8 Between 1979 and 1993 the consumption of lead in South Korea increased at an average annual rate of 12.8%, while that of zinc rose by 10.5%. In Taiwan lead and zinc consumption between those same years rose at annual rates of 13.1% and 11.6% respectively. As the figure below indicates other South East Asian countries also contributed to the underlying growth. Lead consumption in Malaysia and Thailand both increased fivefold during the period, while zinc consumption in the latter almost tripled. Between them these four countries accounted for almost 90% of lead consumption growth in the non-mature economies and over 70% of zinc consumption growth between 1979 and 1993. Consumption of lead and zinc in selected Asian economies 1979-1993 (thousand tonnes) Lead POPE PELE IP voli Litt iyi tt iad iid Malaysia Billiton Metals Page 9 1984 North America Canada 146 USA 980 Total Western Europe Austria 31 Belgium 156 Denmark 10 Finland 22 France Germany * 425 Greece 12 Ireland 1 Italy 210 Netherlands 60 Norway 20 Portugal 11 Spain 101 Sweden 37 Switzerland 21 United Kingdom 182 Yugoslavia 102 Total 1683 _ America tina 31 Brazil 114 Colombia 18 Mexico 98 Peru 33 Venezuela 24 Others 25 Total 343 a K long Kong ** 19 indie 8 130 indonesia 45 japan Korea Philippines 18 Taiwan 42 Thailand 36 Turkey 38 Others 78 Total Australasia Australia ** New Zealand Total AGica Algeria Egypt (orocco Nigeria S. Africa Others Total Western World Total 4704 Consumption of refined zinc in the Western world 1984-1993 1985 156 962 1118 32 169 12 26 247 410 15 1 218 51 21 9 103 31 26 189 105 1665 26 19 99 41 16 29 4745 1986 155 999 1154 33 172 15 24 260 434 15 1 54 19 10 100 32 30 90 4890 (thousand tonnes) 1987 ©1988 1989 158 159 148 1052-1089 :1059 1210 «1248 = 1207 33 34 34 163 175 10 12 11 27 30 30 253 290 279 455 450 14 14 17 1 2 245 254 50 67 19 22 12 10 109 127 35 39 23 18 188 96 1733 40 14 60 19 30 445 25 49 729 20 75 52 58 100 5047 5271 5199 * Prior to 1991 excludes former East Germany ** Prior to 1990 includes zinc alloys from Australia *** Prior to 1990 excludes zinc used in exported zinc alloys Source : ILZSG Billiton Metals Page 10 1990 122 992 1114 39 185 13 29 284 484 20 76 16 15 125 40 23 80 19 125 8 68 11 14 5200 1991 121 931 1052 45 13 27 289 540 16 2 283 82 20 13 129 33 19 184 2004 26 106 5 68 13 14 342 11 48 845 269 31 126 74 47 5379 1992 126 1057 1183 43 189 16 31 258 532 12 1 300 87 19 14 112 30 18 190 68 5398 1993 134 1125 1259 46 14 31 12 2 294 90 15 13 29 17 196 55 5528 Despite the increased reliance of both metals on the non-mature economies to provide demand growth over the past fifteen years, it remains the case that from one year to another it is developments in the major industrialised economies which dictate short term changes in demand patterns. As the figure below illustrates changes in OECD industrial production strongly influence year-on-year changes in lead and zinc consumption. At the time of the two oil crises the enormous changes in industrial output resulted in disproportionately large reactions in metal consumption. In 1975, for example, an 8.3% fall in IP provoked a 13.1% decline in lead consumption and a 22.4% slump in zinc consumption. In the following year lead consumption rose by 11.8% and zinc consumption jumped by 18.6% in response to an 8.9% revival in IP in the OECD area. The influence of the second oil crisis was less severe in terms of its effect on metal consumption, and the unsynchronised recession from which the world economy has been in stages emerging over the past three years has had an even less pronounced impact. This partly reflects the fact that the onset of recessions and subsequent recoveries were staggered between different countries, but also to some extent results from the increased influence of the non-mature economies (many of which are less prone to extreme cyclicality) in recent years. Year-on-year percentage changes in OECD industrial production and Western lead and zinc consumption Lids por fiiit pitt Jit t List fH IP ve Lead = Zinc Billiton Metals Page i1 It is also worth noting that over the years the demand for both metals has come increasingly to rely on a single end-use sector. This is particularly the case with lead where the battery sector has come to dominate. In 1993, according to provisional figures published by the International Lead and Zinc Study Group (ILZSG), batteries accounted for some 66% of lead consumption, compared with 49% in 1979. The influence of the galvanising sector on zinc demand has been less dramatic, but nonetheless significant, as Figure 2.6 illustrates. In the remainder of this section we examine in some detail the impact of changes in consumption patterns for these metals, and attempt to assess the implications for future demand growth. Principal end-uses of lead in 1979 and 1993 1979 1993 49% 66% Hl Gasoline additives Pigments & Compounds Hi Cable sheathing ] Sheet & Extrusions Source: ILZSG Principal end-uses of zinc in 1979 and 1993 1979 1993 Galvanising EB Brass & Bronze Others Source: ILZSG Billiton Metals Page 12 THE CONSUMPTION OF REFINED LEAD As we have noted the consumption of lead has come increasingly to rely on demand from the battery sector. Indeed, it is just.as well for total lead demand that it has been underpinned by this sector. A combination of environmental pressures and competition from other metals and materials has resulted in lead demand in most of its other end uses either stagnating or, in a number of cases, declining significantly. An example of the latter is gasoline additives, in which lead consumption in 1993 stood at a meagre 20% of its 1979 level, having fallen at an average annual rate of 11.7%. The metal's use in cable sheathing and alloy applications also fell markedly over the period, while the decline in rolled and extruded products and "other" uses was somewhat slower. Consumption in pigments and other compounds held its ground, and shot and ammunition recorded slow growth. We now examine recent and likely future developments in each of these end-use sectors in turn, and attempt to assess their potential impact on the level of demand for lead. Table 2.3 Consumption of refined lead in major countries by end-use in selected years (thousand tonnes) Average annual growth 1979 1985 1986 1987 1988 1989 1990 1992 1993 rates Batteries 1797 2131 2164 2303 2394 2492 2541 2566 2662 +2.8% Cable sheathing 276 207 195 194 183 196 182 153 144 -4.5% Rolled and extruded 300 280 289 312, 312 = 310 273 «265 = -0.9% products Shot/ ammunition Alloys Pigments and other compounds Gasoline additives 136 108 = 103 98 74 Other 177, 157) «154. 165) 165-149 156 Total 3685 3692 3647 3826 3925 4045 4022 4027 Source : ILZSG. (Covers over 90% of Western World consumption) Billiton Metals Page 13 STORAGE BATTERIES The rising demand for lead by the storage battery sector has become increasingly evident in all the major markets. In the United States, where storage batteries have accounted for the majority of lead consumption for a number of years, their importance has continued to increase steadily. In 1993 we estimate that storage batteries accounted for some 81% of total lead consumption, compared with 61% in 1979. This is not only a reflection of the strong growth in lead consumption by the battery sector, which rose by almost 35% over the period, but also the marked reduction in other end uses where consumption more than halved. Japanese lead demand has also come increasingly to rely on the battery sector. In 1979 battery demand was only marginally higher than all other sectors, but by 1993 it was more than double having risen by one third over the period, while consumption in the other sectors declined. It was only in 1992 that battery demand in Western Europe overtook the combined total of lead's other end uses. Again this resulted from a combination of strong growth from the sector and weakness in a number of other areas. There seems little doubt that irrespective of developments in lead's other end use markets it will be the requirements of the battery sector which drive the underlying level of demand. The vast majority of these batteries will be employed in starting lighting and ignition (SLI) applications, although other types of batteries cannot be ignored as we will note later. There are a number of factors which interact to determine the level of demand for lead in SLI batteries: . The number of vehicles being produced determines demand for original equipment batteries. ° The vehicle population and average battery life combine to determine the demand for replacement batteries. . The lifetime of the battery and the volume of lead contained in each. Each of these factors varies through time and, indeed, can have conflicting impacts on lead demand from one year to the next. However, we would argue that in the medium to long term the underlying influence of all three will have a positive impact on the demand for lead. Although the production of motor vehicles is cyclical, relying as it does on the general level of economic activity in general, and such factors as interest rates and consumer confidence in particular, the underlying trend is demonstrably positive. Total automobile (car and commercial vehicle) production in the West peaked at just over 45 million units in 1990. This compares with total output of around 35 million units in 1980, some 28 million in 1970 and 16 million in 1960. As standards of living in the industrial world have risen so too has the demand for motor vehicles. Billiton Metals Page 14 Figure 2.7 Lead consumption in storage batteries and other end uses 1979-1993 (thousand tonnes) USA 1200 1000 8 Bl Batteries Ea Other > 8 (oti LUGE thousand tonnes a s yy o 8 87 88 89 90 91 92 93(e) Japan LU tt Hl Batteries Other thousand tonnes = a o ~ uv > oO an Western Europe 1200 1000 800 Wl Batteries 5 thousand tonnes an o N So ool6UcOohChlUDO Jott LILLIE th [Billiton Metals . Page 15 North America was the first region to establish a large domestic automobile industry, such that by 1950 total vehicle output exceeded eight million units. In that year Western Europe produced only 1.5 million units, while the Japanese industry was in its infancy. During the 1950's and 1960's the European industry expanded rapidly and by the end of the latter period had overtaken North America as the major producing region with an output of almost 12 million units. The Japanese industry underwent its first phase of expansion during the 1960's and this growth carried over into the 1970's and, to a lesser extent, the 1980's. In 1990 Western Europe produced around 15.5 million units, Japan 13.0 million and North America 11.7 million. Since then the three regions have enjoyed rather mixed fortunes as a result of the unsynchronised nature of the world recession, but between them they continued to account for over 85% of total Western production. . However, the most significant growth in vehicle production over the past decade has occurred in some of the non-mature economies, particularly South Korea and Malaysia. As the table opposite indicates the consumption of lead in batteries in South Korea and South East Asia has risen substantially in recent years. It is interesting to note that although vehicle production in North America in the early 1990's was significantly lower than in either Western Europe and Japan its consumption of lead in batteries remained somewhat higher than the former and was almost four times greater than the latter. The reason for this is quite simply the overwhelming dominance of replacement batteries in the North American market. Figure 2.8 Index of automobile production and lead consumption in batteries and automobile population in the six major economies (index 1970 = 100) Jt t Pout million units a TTTIT]TFITY]TTTT TTT]TTT TTTTYTTITITTTTTT | ] I ] | I | Jtjt --~ Car and CV production Car and CV population = Lead consumption in batteries Billiton Metals Page 16 The Society of Motor Manufacturers and Traders (SMMT) reports that in 1993 there were some 210 motor vehicles in use in North America compared with around 165 million in Western Europe and 63 million in Japan. As Figure 2.8 illustrates the impact of rising vehicle population on the demand for lead is evident. Although the index of lead consumption in batteries is clearly influenced by the level of vehicle production as time has gone by the gap between the two has widened as a result of the ever increasing demand for replacement batteries from the expanding automobile population. Table 2.4 Consumption of lead in batteries by major consuming countries (thousand tonnes) 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 Canada 444 654 653 649 615 606 63.9 48.3 564 673 62.7 us 806.9 865.5 840.9 853.8 953.6 969.7 1012.1 1019.6 1007.1 998.2 1119.8 Total North America 851.3 930.9 906.2 918.7 1015.1 1030.3 1076.0 1067.9 1063.5 1065.5 1182.5 Austria 23.9 28.2 29.0 300 29.0 33.0 32.0 400 400 435 415 Belgium 21.0 21.0 23.0 240 240 21.9 21.0 222 216 221 23.0 Finland 90 9.0 12.0 84 59 5.7 65 7.0 75 5.0 3.0 France 126.0 133.0 138.0 128.0 138.0 142.0 160.0 163.5 168.6 166.2 155.8 Germany* 144.4 157.2 167.2 1656 161.6 162.7 1784 195.2 205.3 223.3 204.1 Italy 95.0 95.3 97.7 101.2 105.2 107.3 109.0 113.2 111.9 108.7 107.0 Netherlands 185 19.0 185 199 20.2 234 205 22.0 22.0 21.0 20.0 Scandinavia 35.9 402 411 401 395 299 288 246 21.3 20.0 28.0 Spain 50.3 754 80.0 836 719 73.5 76.2 88.9 926 70.0 69.0 Switzerland 5.0 50 5.0 50 56 5.0 41 4.2 7.2 61 6.0 United Kingdom 87.7 90.8 97.0 94.3 97.0 100.7 102.2 103.7 106.0 106.5 102.6 Total Europe 616.7 674.1 708.5 700.1 697.9 705.1 738.7 784.5 804.0 792.4 760.0 Brazil 40.3 474 533 60.1 658 67.2 69.2 57.1 50.0 525 560 Mexico 17.1 86 10.2 5.9 6.5 74 118 116 133 146 13.0 Total Latin America 57.4 560 635 66.0 723 746 81.0 68.7 63.3 67.1 69.0 India 15.1 168 180 164 165 188 202 186 23.2 186 160 Japan 206.8 238.9 253.3 262.0 259.6 285.4 278.9 294.6 294.6 284.3 256.4 S. Korea 32.0 340 45.0 510 73.0 88.0 95.0 100.0 113.0 113.0 123.0 South East Asia (n/a) 73.1 76.6 88.9 105.1 126.0 126.0 137.0 136.0 157.0 184.0 Total Asia Australia New Zealand Total Australasia 253.9 23.7 2.7 26.4 3.0 27.2 392.9 25.9 6.0 31.9 418.3 27.0 5.5 32.5 454.2 26.7 5.5 32.2 518.2 520.1 550.2 25.2 27.3 23.4 5.5 8.3 5.9 30.7. 35.6 29.3 566.8 23.2 3.2 26.4 572.9 25.5 3.2 28.7 579.4 29.7 45 34.2 Total 1827.2 2081.0 2131.4 2164.2 2303.0 2394.3 2492.3 2541.3 2557.8 2565.6 2661.7 (including others) . Source : ILZSG * Includes former East Germany from 1991 Billiton Metals Page 17 Although demand from the replacement market is nowhere near as dominant in Western Europe or Japan as it is in the US, there is ample evidence to suggest that it has become increasingly important. Between 1979 and 1993 the vehicle population in Western Europe rose by nearly 50 million units, while Japan added a further 27 million vehicles to its roads. It is little wonder that lead consumption in batteries has grown more quickly than vehicle production in both areas. We believe that around 70% of Western European SLI battery shipments are replacement units, while increasing incremental demand for replacement units is steadily beginning to outweigh demand for original equipment batteries in Japan. At the end of 1993 the SMMT estimates that the world's vehicle population amounted to some 624 million units, compared with 555 million at the end of 1989. As the table below indicates the intensity of vehicle ownership has continued to rise in most areas. Although the rate of increase will undoubtedly slow in the industrialised countries, intensity of ownership will nevertheless probably continue to increase as the population becomes wealthier and technological and material improvements extend vehicle lifetimes. The scope for growth in the developing countries, where the vast majority of the world's population resides, is of course enormous. Thus, the world's vehicle population will continue its inexorable rise, and demand for replacement batteries will increasingly underpin the consumption of lead. Intensity of vehicle ownership in selected areas (persons per vehicle) 1983 1989 United States 14 1.2 European Community 2.6 2.3 Japan 28 2.2 Asia 41.0 32.2 Africa 47.0 42.6 World total 10.0 8.8 Source: SMMT The other factors which will influence the demand for batteries (and therefore lead) are battery life and weight. Although battery life varies considerably between one country and another as a result of the vagaries of climate and differences in driving habits, the general trend has been towards increased lifespans. However, in recent years the introduction of catalytic converters has raised engine compartment temperatures and this has reduced average battery life. Overall the impact of this factor is unlikely to have much influence on the level of battery (lead) demand. During the 1970's and early 1980's the general trend was towards using smaller batteries which required less lead. This resulted from a continuation of technological improvements in battery design and the fact that more smaller cars were being built (particularly in the US) as a result of the oil crises. In recent years battery weights have increased in response to the greater number of electrical appliances being fitted in cars, and this trend seems set to continue. Further ahead, however, lead demand may be affected by the development of lighter batteries, but this seems some way off. [Billiton Metals Page 18 ] Electric Vehicles Looking further ahead one potentially huge area of demand growth for lead-acid batteries is the electric vehicle (EV) market. Electrically-powered vehicles have of course been around for some time. When conventional performance parameters are not a consideration such vehicles offer distinct advantages over those powered by an internal combustion engine. Not only do they offer lower power and maintenance costs, but are also quieter and cleaner. When employed as highway transport such vehicles are normally owned by public utilities in roles with strictly limited operational parameters. Elsewhere they are employed in a variety of specialist roles such as forklift trucks, golf trollies and airfield towing vehicles to move cargo or manoeuvre planes. So far the rather poor performance parameters of EVs (slow speed, limited range, recharging time) has constrained demand and therefore, limited large scale production. Up until recently all the EVs produced have been either specialist utility vehicles or low volume prototypes. A number of major automobile producers stated their intention to produce large numbers of EVs by the end of the 1980's, but failed to deliver, largely as a result of inadequate battery technology. However, this situation is changing, and most of the major car makers have plans, at various stages of development, to produce a commercially viable electric vehicle. The attention of these companies was concentrated by the decision of the Los Angeles City Council in 1988 to embark on a programme to put 10,000 hybrid vehicles on the city's roads by 1995 and the California state government's subsequent decision to pass legislation on the matter. This legislation requires that with effect from 1998 two percent of car sales in California must consist of zero emission vehicles (ie. electric vehicles), rising to at least 10% (200,000 vehicles) within five years. Furthermore, the intention is that by the early 21st century more than 25% of commercial vehicles in the Los Angeles basin will be electrically-powered. Given that new car sales in California total around 17 million on an annual basis it is clear that auto-manufacturers had no option but to respond to these developments. Especially since several other US states reportedly are following California's lead. As Table 2.6 shows automobile manufacturers not just in North America, but also in Western Europe and Japan have invested in either converting existing vehicles or purpose designing EVs. Progress has, however, been far from smooth, as the search for a "superbattery” capable of giving EVs anything approaching the performance parameters of vehicles driven by an internal combustion engine has proved elusive. Indeed, the US motor industry argues that a truly zero emission vehicle is not technically achievable by 1998. Such arguments have been falling on deaf ears at the California Air Resources Board for some years. Manufacturers, then, have had little option but to start developing EVs, given that the penalty for non-compliance is exclusion from the Californian (and possibly other states) market. A possible compromise are hybrid vehicles Billiton Metals Page 19 Major electric vehicle projects under development Producer Vehicle. Power Battery Top Speed Configuration (km/h) (km) Duo Hybrid Ni/Cad 50+ 40 3-Series Battery Na/S 120 145 E1/E2 Battery Na/S 120 250 La301 Hybrid Pb/acid or 96/240* Na/S Panda Battery {Pb/acid or 70 Elettra {Ni/Cad 90 Ducato Battery ? 43 Elettra Escort van _ Battery Na/S 160 Escort van Hybrid Na/S 400" HIL QT50 Battery Pb/acid or 200 Na/S Mercedes 190 Battery Na/Ni C12 150 or Na/S Peugeot Express van Battery Pb/acid 72 Renault Clio Battery Pb/acid 80 Vauxhall Impulse Battery Pb/acid 100 Volkswagen _ Jetta Battery Na/S Golf Hybrid Ni/Cad 20 Volvo ECC Hybrid Ni/Cad 750 (850GTL) Chrysler TEVan Battery Pb/acid Ford Various Hybrid Pb/acid GM Impact Battery Ni hydride He Hybrid Ni hydride Shevrolet Battery Pb/acid Hyundai ? Battery Ni hydride Mazda Battery Pb/acid Mitsubishi Battery Pb/acid Nissan Battery Ni/Cad Toyota Battery Zn/Bromine + Electric only * With range extender Source : Battery Council International, Electric Vehicle Progress, Various press reports [Billiton Metals Page 20 | which offer very low (but not zero) emissions through an internal combustion engine operating in tandem with a battery system. Hybrid vehicles would employ a very small petrol or diesel engine running at constant speed to keep batteries charged when running on open highways, thereby overcoming the range problem, but switching to battery-only operation in urban areas where pollution needs to be minimised. The issue of pollution is by no means a straightforward one. There are those who _ argue for example, that the power contained in the batteries has to be generated somewhere and if it is generated by the burning of fossil fuels will have a negative environmental impact. Little wonder that in Europe the French have been the greatest advocates of EVs, given that some 75% of their power is generated from nuclear plants which do not emit noxious gases. Nevertheless, it can be argued that even when it comes to burning fossil fuels it is better to do so at a small number of locations, where emissions can be monitored and to some extent controlled. Whilst hybrid vehicles admittedly are not emission-free, they are nonetheless substantially less polluting then internal combustion engines on their own as well as having certain advantages over EVs. The cheapest versions of EVs are solely dependent on battery power which raises the problems of battery pack size and limited range. Rising to this challenge the United States Advanced Battery Consortium (USABC), which consists of General Motors, Ford, Chrysler and the Electrical Power Research Institute, has embarked on a four year programme to come up with an improved battery suitable for use in EVs. At present lead-acid and nickel-cadmium are the only viable configurations for use in EVs, but considerable improvements are required. The weight of the present lead-acid battery continues to pose a problem and it is hoped that a new battery with a shorter charging time and longer operating life will be developed. Other battery configurations are at different stages of development, and to varying degrees they represent a threat to lead-acid. Nickel-cadmium probably offers the greatest competition in terms of technological development, although the cost of these batteries is likely to remain a constraint to their wide acceptance. Sodium-sulphur batteries offer the attraction of weighing about one third less than their lead-acid equivalent, but they consume energy just to remain at the high operating temperature (300 degrees centigrade) needed to keep the sodium and sulphur liquid. Also, they must be well sealed as these are potentially hazardous chemicals. Nevertheless, a number of companies are proceeding with Na/S batteries, including Ford and BMW. Other battery designs which may play a role in EV development include zinc-bromine, nickel-zinc, nickel-iron and aluminium air, although some of these must be considered outsiders. However, the lead industry is alert to these dangers and has not been sitting still. The Advanced Lead-Acid Battery Consortium (ALABC), a grouping of four battery producers and eleven lead producers, co-ordinated by the International Lead Zinc Billiton Metals Page 21 Research Organisation (ILZRO) is pursuing the goal of faster recharging with the help of an injection of US government funds from the Federal Transit Administration. A stated goal of ALABC is developing a valve-regulated, maintenance-free, deep-discharge battery to be able to return 50% of the charge in five minutes, 80% in 15 minutes and full charge in four hours. Although General Motors appears to have turned its back on lead-acid batteries, having signed a contract with Ovonic Battery Co to produce nickel-metal hydride batteries, the same is not true of the other US automakers. Chrysler and Electrosource Inc, for example, have reached an agreement that will result in the use of lead-acid power cells in prototypes of Chrysler's NS-series electric vans. Furthermore, Ford and Electricar, the US's biggest producer of electric vehicles, are to develop a programme that could lead to the conversion of the skills of Ford vehicles into EVs. While, the timing of the various EV programmes is a matter of some conjecture, the concept now appears to have enough momentum to become a reality, given the level of commitment of the automobile industry and various government bodies worldwide. If others follow California's lead, as seems likely, it will increase the willingness of the automobile industry to subsidise the first generation of EVs until the cost of producing such vehicles can be reduced. What seems certain, however, is that this first generation, be they pure or hybrid, will employ lead-acid batteries as their power source. Other Battery Markets Lead/acid batteries are employed in a wide variety of other end-uses, most of them fairly small in terms of lead consumption, but nevertheless offering potential for further growth. The development of sealed batteries undoubtedly opened up new market opportunities for non-automotive batteries. As well as being safer, sealed batteries have greater energy and power densities and higher charging efficiencies. First introduced in 1975 in small single cells, the product range has expanded to larger designs for engine starting and standby duties. The demand for sealed batteries for use with advanced telecommunications equipment has resulted in a significant growth area for lead demand. Originally only available in the form of single cells for portable and emergency applications, they are now produced by most major battery manufacturers and are available in large multi-cell form. At present the market for standby batteries is dominated by the telecommunications industry and in the short term this sector probably offers the greatest scope for growth. Several major telephone companies have invested in research and development in an attempt to improve lead /acid battery technology. The rapid evolution of the telephone networks of the developed economies, particularly the changeover from electro-mechanical to electronic switching, dramatically altered their power requirements. The major objectives were to reduce Billiton Metals Page 22 the costs of investment and operation, increase the reliability of the power supply and decrease maintenance. The sealed battery fulfilled these criteria. Thus the traditional exchange battery room with its acid-proof walls and expensive ventilation equipment is increasingly giving way to compact storage energy racks the continued changeover to electronic switching, along with the expansion of telecommunications in developed and developing countries provides a potentially large growth area for lead consumption. Lead/acid batteries will remain the favoured source of standby power in hospitals. Their use is also increasing as storage back up for alternative power generation systems, such as solar power generation. This is just one of the new markets which have been created, partly through major development efforts in several technological areas, and also by combining new battery design with new systems technology. We believe the outlook for lead/acid batteries in a myriad of smaller end-uses is very healthy indeed. Another potential growth area is bulk energy storage systems ranging from 10 kw to 100 Mw in power, requiring batteries from 10 kwh to 600 Mwh in capacity. The major users of such systems are electrical utilities and their large industrial customers. Electrical utilities employ bulk storage systems in load-levelling applications, as well as a means of deferring capacity additions at various stages of their supply networks. Load levelling is the method by which electrical utility companies store electricity at times of low demand and subsequently discharge it at periods of high demand. They do this by charging batteries when their low marginal cost base load power plants are under-utilised (ie. during the night) and discharging at times of high demand, rather than restarting or increasing output from high marginal cost plants. The utilities benefit through the reduction in their fuel costs and an improvement of their load factors. Similarly, on the other side of the meter, large industrial consumers enjoy savings by the reduction of their peak demand charges using peak shaving. As far as possible electrical utilities generate using their lowest cost fuels. Thus, with the exception of hydro electric plants, most rely on coal and nuclear capacity to meet their baseload requirements. As demand increases gas-fired steam plants are brought onstream, and when peak loads occur, high cost oil or gas-fired combustion turbines are started up. In the USA load factors on base load generating units have been declining in recent years (because of under-utilisation overnight) while peak load demands have been rising (to meet lighting /heating loads in winter and air conditioning in summer). In response several US utilities have adopted load levelling techniques to cope with often wildly fluctuating levels of demand within a given day. Benefits of battery energy storage systems include; improved base load efficiency, peak load management, short construction time, easy siting, environmental acceptance and capital expense deferral. Many of these benefits also accrue to customer-side-of-the- meter (CSOM) peak shaving applications. Billiton Metals . Page 23 Over the past 15 years or so, the US Department of Energy and the Electric Power Research Institute have helped to fund the development of a number of bulk energy storage technologies. The consultancy group SRI notes that both flooded and valve- regulated systems are currently being installed in the United States on a commercial basis, although we understand the latter are experiencing problems of premature capacity loss. Similar developments have taken place in Japan through the Moonlight project. In San Diego a 400 kWh peak shaving battery (valve-regulated lead-acid) is being tested by the Metropolitan Transport Authority. The Puerto Rico Electric Power Authority is reportedly starting up a 14 MWh spinning reserve (flooded lead-acid) system, and Hawaii Electric is planning to install a similar 15 MWh frequency regulation and peak shaving system in 1995. Table 2.7 Forecast of US Industrial Battery Production (Million 1993 $ US) 1993 1998 Average annual growth rates Motive Power Trucks and AGVs Rail and mine vehicles Sub-total dby Pow: Telecommunications Uninterruptible power supplies Control /switchgear Lighting/alarm Photovoltaic Bulk energy storage Sub-total Overall total Source: SRI SRI's forecasts of industrial battery production in the US are shown in the table above. Standby power uses overtook motive power applications in 1993, and are projected to grow at a faster rate over the five years to 1998. However, the company does note that the 20% growth forecast for bulk energy storage systems is not expected to continue until the few large systems scheduled for installation have been operated and evaluated. Billiton Metals j Page 24 LEAD IN CHEMICALS This is the second largest end-use for lead, although with batteries dominating the market it accounted for just 12% of total demand in 1993 having declined in two consecutive years. Demand for lead in chemicals fell in the early 1980's but the subsequent pick-up thereafter indicated that this was down to the recession rather than to any effects of substitution. Since then demand has tended to move in line with economic growth. Lead used to be widely used in chemicals in the form of paints, although this now constitutes a pretty negligible proportion of demand as a result of increased awareness of the health risks involved. Hence white lead (lead carbonate) has long since lost out to titanium dioxide. However, red lead has remained resilient thanks to its corrosion-resistant qualities and is used as a paint base on untreated steels. Lead's main uses in this sector now are as a stabiliser in PVC and in ceramics and glass. In PVC lead stops the degrading of material during processing and when it is exposed to sunlight. It is employed in such products as window and door frames and piping. However, it must be said that usage in the latter has suffered somewhat for health reasons. Growth in these applications more or less depends on the performance of the construction industry. In glass lead is used in blown and crystal glass, light bulbs and tubes. One major growth area is the use of lead oxide in radiation shielding for television and computer screens. While the threat of further substitution in these applications now appears unlikely it is also true that the growth potential is also pretty limited. Indeed, as we noted earlier the use of lead in chemicals is likely to continue to track economic movements, albeit in a rather volatile fashion. Table 2.8 : * : Consumption of lead in chemicals by major consuming countries (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993(e) US 60.9 68.7 768 728 69.5 68.1 625 58.0 565 59.6 63.2 63.6 France 27.8 21.8 254 275 23.5 27.5 289 342 294 25.1 24.2 23.8 Germany 675 72.0 778 914 80.1 79.7 90.2 100.0 100.3 113.7 93.9 808 Italy 454 36.0 353 352 343 363 424 461 400 461 43.7 424 Ppain 21.2 215 186 168 12.1 19.1 209 189 21.7 20.0 15.0 160 198 21.4 244 21.2 274 374 308 285 286 14.0 162 175 Mexico 496 45.1 499 50.7 579 62.7 529 578 378 515 642 584 Japan 66.6 69.1 75.1 73.3 618 61.2 658 684 64.0 68.8 623 59.0 Total (including others) 448.7 448.0 502.6 523.9 499.6 527.6 526.6 557.0 517.0 542.9 530.6 (year on year % change) (-5.2) (-0.2)(4+12.2) (44.2) (-4.6) (45.6) (-0.2) (45.8) (-7.2) (45.0) (-2.3) Source : ILZSG. * Includes former East Germany from 1991 Billiton Metals Page 25 Year-year changes in OECD IP and Western world consumption of lead in chemicals 1980-1993 i 8 = Lead in chemicals Source: OECD, ILZSG LEAD IN ROLLED AND EXTRUDED PRODUCTS The consumption of lead in rolled and extruded products recorded an annual average decline of almost 1% between 1979 and 1993 to stand at 265,400 tonnes in the latter year. Lead's use as piping for plumbing has long since suffered from substitution by copper and plastics and its principal use now is as rolled sheet and strip for roof flashings. Given that the UK is now the only major consuming country to still prefer lead in this application (other European countries prefer zinc, and the US now uses other materials) it now accounts for the greater part of consumption. Indeed, in 1979 the UK consumed just over 16% of total demand, compared with almost 32% in 1993. Hence, it is no great surprise that demand for lead in this end-use is to some extent subject to the vagaries of the UK housing market. Consequently, the latter's poor performance took its toll on demand between 1989 and 1992. We believe that a modest pick-up took place in 1994 and given that Europe is the largest consuming region, the anticipated economic recovery there should also help to boost demand for this end-use in 1995 and beyond. Billiton Metals Page 26 Consumption of lead in rolled and extruded products by major consuming countries (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993(e) US 34.9 38.8 40.6 346 35.3 356 355 372 35.8 35.7 36.7 33.4 Belgium 17.9 26.0 285 27.2 30.7 27.7 30.7 283 32.0 304 304 31.0 France 254 229 216 19.1 20.1 205 221° 248 229 238 19.8 18.5 Germany* 36.7 404 43.7 425 406 374 38.0 37.1 39.1 391 358 368 Italy 30.1 23.2 242 216 195 187 198 20.2 215 20.8 15.9 12.9 Netherlands 17.0 140 16.2 141 145 18.0 22.0 23.0 23.0 20.0 17.0 15.0 Spain 11.0 126 89 77 105 69 93 86 92 70 7.0 7.0 UK 55.3 80.3 89.0 80.0 86.3 87.9 1043 99.9 986 816 846 845 Japan 194 186 16.7 155 13.7 121 13.1 13.3 109 111 114 10.0 Total (including others) 258.3 288.6 302.0 279.6 289.0 281.8 312.0 311.8 309.6 284.9 273.2 265.4 (year on year % change) (-10.0) (411.7) (+4.6) (-7.4) (43.4) (-2.5)(+10.7) (-0.1) (-0.7) (-8.0) (-4.1) (-2.9) Source : ILZSG. * Includes former East Germany from 1991 Year-on-year changes in European housing starts and Western world lead consumption in rolled and extruded products 1980-1993 EZ Housing starts — Lead in rolled and extruded products Source: OECD, ILZSG Billiton Metals Page 27 LEAD IN CABLE SHEATHING The development of new technology and the substitution process in this end-use began to have a significant impact on demand in the 1970's. Indeed this continued in the 1980's and early 1990's such that cable sheathing accounted for just 3.6% of total lead demand in 1993. Between 1979 and 1993 demand fell at an annual average rate of 4.6%. Admittedly lead has managed to hold its ground in its use in power cables, but it has lost out to polymers in the telephone cable market. Furthermore, even where lead is still the preferred material, the actual amount needed has been substantially reduced. Nevertheless, it is interesting to note that Italy has remained a significant consumer of lead in this end-use. Indeed, it is the only mature economy to still prefer lead for the insulation of telecommunication cables. This factor has helped to limit the fall in demand, as has the growth of the non-mature economies. Of these, India has been a particularly significant consumer, although it has to be said that demand from this country fell sharply in 1992 and slumped further in 1993. In short the outlook for lead in cable sheathing is not particularly encouraging although most of the damage has now been done. Furthermore, demand from some of the developing countries should help to underpin for the foreseeable future. However, the best that can be hoped for overall is probably gradual erosion of this market. Table 2.10 Consumption of lead in cable sheathing by major consuming countries (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993(e) US 15.2 105 123 155 17.1 201 162 226 183 175 160 17.2 France 15 143 127 140 96 119 114 136 163 156 174 16.5 Germany* 206 163 141 148 145 136 11.7 14.1 122 148 111 9.3 Italy 39.0 40.0 35.0 360 42.0 43.4 45.0 50.0 48.7 394 41.2 33.5 UK 20.9 19.2 15.1 13.1 13.0 10.0 11.0 126 104 86 93 8.9 India 25.0 21.0 16.1 189 167 19.2 159 165 165 144 68 46 Japan 31.6 23.3 203 17.7 128 63 46 55 49 69 59 69 Total including others 249.7 223.0 206.6 207.0 195.2 193.7 183.2 196.0 182.1 169.9 1525 143.5 (year on year % change) = (+2.8) (-11.7)_ -7.4) (+0.2) (-5.7) (-0.8) (-5.4) (+7.0) (-7.1) (-6.7) (-10.2) (-5.9) Source : ILZSG. * Includes former East Germany from 1991 Page 28 LEAD IN ALLOYS The consumption of lead in alloys has fallen sharply in recent years and in 1993 accounted for just 3.4% of the total market. Between 1979 and 1993 demand actually fell at an average annual rate of 3.5%. Lead is normally alloyed with antimony and tin and its uses in this form include solder, bearings, type metal and, to a lesser extent in the prevention of corrosion in pumps and valves in the chemical industry. In the case of lead used in type metal demand has suffered at the hands of new technology and methods eg. offset litho reproduction and there is no hope whatsoever of recovery. As for bearings the amount of lead used in babbits in cars, railway transport and industrial applications has decreased. In other applications reinforced polymers have now supplanted lead, except where higher tolerances are required and then stronger materials are employed. Solders are the most significant application for lead in alloys, mainly in the engineering and electronics industries. Broadly speaking the former uses alloys averaging 75% lead, and the latter alloys averaging 40%. To a certain extent, therefore, growth in these two industries will have some bearing on demand for lead in alloys, but the after-effects of new technology and substitution are still being felt.. Hence whilst the downside should now be limited a marked pick-up in demand is not envisaged. Consumption of lead in alloys by major consuming countries (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993(e) Canada 23.5 198 136 106 85 69 73 59 52 55 58 6.6 US 77.2 69.1 60.1 60.7 50.0 572 533 47.7 464 414 44.6 46.4 France 55 51 36 25 38 36 36 34 32 49 44 4.0 Germany* 126 11.9 121 123 116 102 94 98 90 89 10.6 8.2 Italy 5.2 50 53 62 65 65 55 49 35 34 33 3.0 UK 16.9 196 186 190 19.1 21.0 225 224 22.0 19.8 22.0 21.5 Japan 16.1 180 19.0 180 183 184 182 185 19.1 179 14.9 14.6 Total including others 176.7 167.8 159.3 155.4 142.7 150.7 147.1 141.8 134.4 133.8 139.0 1378 (year on year % change) (45.8) (5.0) (-5.1) (-2.4) (-8.2) (45.6) (-2.4) (-3.6) (-5.2) (-0.4) (+3.9) — (-0.9) Source : ILZSG * Includes former East Germany from 1991 Billiton Metals Page 29 LEAD IN GASOLINE ADDITIVES Growing environmental awareness has certainly taken its toll on the use of lead in gasoline additives in recent years. In 1979 consumption in this end-use totalled 291,300 tonnes and by 1993 it had fallen to a meagre 54,300 tonnes. This amounts to an annual average decline of 11.7%. The US was once the largest consumer of lead in this application but, having declined sharply during the 1980's and early 1990's, its demand had disappeared completely by 1992. Meanwhile, Mexican consumption appeared to be on an uptrend in the mid-1980's although it too has fallen in recent years. Western Europe is still by far the major consuming region, and the UK the largest single consumer. However, a downtrend is clearly in place and we expect this to be maintained in the foreseeable future as the automobile population using unleaded petrol continues to grow, particularly given that pollution concerns are not just a passing phase. cate Consumption of lead in gasoline additives by major consuming countries (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993(e) US 119.2 89.2 789 45.7 285 266 27.1 23.7 20.7 11.0 - France 1.9 11.0 11.7 139 99 9.8 8.0 . 4.7 Germany* 9.2 79° 78 9.7 79 74 70 6.7 18 4 15 Italy 9.6 90 90 9.7 8.4 72 53 58 37 7.5 43 544 538 508 483 448 453 459 . 45.1 41.0 .! 38.8 Total Western Europe 85.1 81.7 793 81.6 72.7 71.1 66.6 58.6 58.3 a 493 Mexico 72 55 73 87 91 79 76 47 5.0 Total above countries 211.5 1764 165.5 136.0 1103 982 89 74.0 543 (year on year % change) (+14) (-16.6) (-6.2) (-17.8) (-18.9) (-4.7) (-11.5) (-14.9) (-21.5) Source :ILZSG. * Includes former East Germany from 1991 LEAD IN SHOT AND AMMUNITION Lead in shot and ammunition is mainly used in sporting ammunition and in the manufacture of free machining metals. This is one of the less significant end-uses of lead, accounting for just 2.9% of consumption in 1993. Unlike some of lead's other end-uses, however, its market share has remained reasonably stable throughout the 1980's and early 1990's and between 1979 and 1993 demand actually grew at an average annual rate of 2.2%. The US is by far the largest consumer, accounting for around 56% of total demand in 1993. Italy accounts for the bulk of Western European demand, followed by Germany, and demand in the region has been relatively stable in recent years. Whilst conceding that the growth potential for lead in this end-use is fairly limited, demand is still expected to hold reasonably steady for the foreseeable future. Billiton Metals : Page 30 THE CONSUMPTION OF REFINED ZINC As the table below clearly indicates the consumption of refined zinc has come increasingly to rely on the galvanising sector. According to the ILZSG between the years 1979 and 1993 consumption in the sector rose by some 31%, at an average annual rate of 2.2%. Whereas in the metal's other end-uses demand either stagnated or fell over the period. Zinc's use in alloys has not fared particularly well, falling at an average annual rate of 0.3%. This is largely attributable to a slump in US demand where the metal has experienced competition from aluminium and other materials in the important automotive sector. To some extent, however, the impact of this has been offset by the greater acceptance of zinc-based alloys in a number of European countries. In the metal's second most important end-use, brasses and bronzes, demand has also fallen, albeit marginally. Again this has been to a considerable extent the result of a marked decline in US consumption which fell by 21.5% between 1979 and 1993. The metal's use in semis - mainly rolled sheet and strip for roofing and guttering applications - has actually increased in the US, as well as in Germany, but this has been offset by declines in some other countries, and as a result overall demand has stagnated. The same is true of zinc's use in oxide production. We now examine recent and likely future developments in the major end-use sectors and attempt to assess their probable impact on the future level of demand. Table 2.13 Consumption of refined zinc in major countries by end-use in selected years (thousand tonnes) Average annual growth 1979 1993 rates Galvanising 2052 2770 +2.2% Brass & Bronze 1102 1023 -0.5% 783 841 834 816 -03% 357 386 349 359 417 +0.7% 428 431 435 447 424 444 461 +04% 212 221 222 239 242 281 244 243 +18% 4736 4999 5166 5369 5462 5468 5532 5634 5730 +1.0% Note: Includes remelted material. Series not consistent in terms of countries included by ILZSG throughout entire period. Source : ILZSG. Billiton Metals Page 31 GALVANISING Coating the surface of sheet steel with zinc is an extremely effective and economical means of providing corrosion resistance. Not only does the zinc coating provide barrier shielding, zinc and zinc alloy coating also offers protection through a sacrificial mechanism. Electrochemical differences between iron and zinc mean that the latter is consumed preferentially in the event of the coating being damaged. The traditional method of galvanising is hot-dip, which involves immersing the article in a bath of molten zinc which reacts with the iron to form an impenetrable barrier. This stops moisture or air reaching the steel, thereby preventing it from rusting. Increasingly, however, the trend has been towards electro-galvanised coatings which, because they are generally much thinner, do not provide as great corrosion protection. What they do offer, though, is the advantage of greater formability and of being able to be spot welded. Also, the surface finish is smoother than hot-dipped or galvannealed steel, giving a superior surface for painting. These characteristics of course make electrogalvanised steel attractive to the automobile manufacturers, and the tremendous growth in electrogalvanising capacity since the early 1980's has been a direct response to the demands of that industry. Over the past two decades or so a variety of zinc-coated products have been developed to augment the traditional hot-dipped, electro and galvannealed products. The two major types are Galvalume (55% aluminium/45% zinc coating) and Galfan (95% zinc/5% aluminium), both of which have enjoyed a fair degree of success. Production of coated sheet in the West 1980-1993 (thousand tonnes) o : an. paren Leseeeeeeraewast De = : Cait teers care ereey q q Billiton Metals Page 32 In whatever form there is no doubting the success of zinc-coated steels as a whole. As Figure 2.11 indicates the production of coated sheet in the West more than doubled between 1980 and 1990. Although growth stalled somewhat in the following three years, as the unsynchronised recession took its toll on automobile production and construction activity, there is no doubt that the underlying trend remains firmly positive. To a considerable extent the growth in demand for galvanised products that has occurred over the past decade has been fuelled by the automobile industry worldwide, although the construction sector (mainly non-residential) remains the major consuming sector. For the foreseeable future this will remain the case. Table 2.14 a : : . Consumption of zinc in galvanising by major consuming countries (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993(e) Canada 604 649 65.7 702 69.9 723 804 772 633 543 66.0 65.0 us 342.0 373.2 375.5 362.4 529.2 550.0 549.0 552.0 505.9 452.6 553.0 608.0 Total N. America 4024 438.1 441.2 4326 599.1 6223 6294 6292 569.2 506.9 619.0 673.0 Austria - - 190 206 210 20 25 23.0 255 30.0 285 305 Belgium 664 73.8 795 828 794 926 100.9 1064 1169 117.3 1195 126.0 Finland 21.2 206 17.1 205 211 226 259 286 25.0 23.0 264 280 France 96.2 978 99.8 1015 106.4 1182 1299 141.7 1529 163.7 162.3 160.0 Germany** 138.2 142.3 1423 136.3 1346 136.9 139.2 159.0 165.1 194.7 203.3 215.0 Italy 90.2 83.9 86.0 91.0 95.7 110.0 1250 1395 143.8 143.1 141.7 1353 Netherlands 188 23.0 17.7 180 19.0 196 25.0 30.0 320 440 480 50.0 Scandinavia 38.4 382 373 413 383 415 433 43.2 433 414 426 412 Spain 438 443 509 50.0 516 522 518 590 69.2 767 699 719 Switzerland 7.0 91 84 88 96 96 98 104 103 94 9.3 9.0 United Kingdom 8.5 866 90.5 90.5 872 958 1014 1044 1048 965 1034 105.1 TotalW.Europe 603.7 619.6 648.5 661.3 663.9 721.0 774.7 845.2 888.8 939.8 954.9 972.0 Brazil 451 418 478 564 67.2 765 665 652 542 480 45.0 55.0 Mexico 426 459 492 43.8 378 450 446 413 459 455 509 50.0 Total L. America 87.7 87.7 97.0 100.2 105.0 121.5 106.5 100.1 93.5 95.9 105.0 India 50.9 452 408 43.6 40.1 486 490 443 401 368 359 340 Japan 4144 458.1 469.5 455.7 441.8 450.8 485.7 4978 510.2 531.3 515.2 461.9 South Korea* 650 77.0 85.0 81.0 98.0 113.0 1120 130.0 155.0 180.0 175.0 204.0 SE. Asia 1088 126.1 98.7 940 796 750 67.7 95.7 107.0 112.0 125.0 129.0 Thailand* - - - - 30.2 382 39.6 40.0 429 496 473 594 Total Asia 639.1 706.4 694.0 674.3 689.7 725.6 754.0 807.8 855.2 909.7 902.6 8883 Australia 52.7 485 479 57.0 564 568 626 626 53.7 538 543 521 New Zealand 184 159 21.0 180 155 155 173 212 134 124 124 161 Total Australasia 711 644 689 75.0 71.1 723 799 838 67.1 662 66.7 682 South Africa 68.0 59.0 66.7 65.1 63.1 700 616 753 640 650 618 633 Total 1872.0 1975.2 2016.3 2008.5 2192.7 2332.7 2410.7 2547.8 25444 2581.1 2700.9 2769.8 Source : ILZSG , * South Korea and Thailand included in SE Asia total until 1982 and 1986 respectively. ** Includes former East Germany from 1991. Billiton Metals Page 33 Over the past decade significant advances have been achieved in increasing the durability of automotive structures. One of the most important measures has been the introduction of zinc coated steels in a variety of forms. Some years ago Audi widely publicised its use of 100% coated steel in its cars - hot dipped for inner panels, electrogalvanised on outer skins - but more recently automobile producers have adopted a much wider range of coated sheets. The material, or more likely combination of materials, chosen by individual manufacturers will depend on a number of criteria, not least cost and corrosion resistance in a particular application. Another important consideration is manufacturing compatibility at the pressing, assembly and painting stages. Manufacturers preferences are diverse. In Europe, for example, BMW, Fiat and Renault all prefer electrogalvanising; Ford and General Motors favour Zn-Ni; Audi, Jaguar and Volvo use a combination of hot-dipped and electrogalvanised; Rover, Honda and Toyota prefer galvanneal while Nissan uses organic duplex coating. The consumption of zinc in the production of galvanised sheet sheet in North America increased dramatically during the 1980's. Although the second oil-induced recession took a heavy toll and production slumped to 402,400 tonnes in 1982 as a Table 2.15 Types of automotive zinc-coated steels Coating system Type Coated weight (g/sq metre) Internal External Hot-dipped Hot-dipped galvanised Galvannealed Galvannealed dual flash Prefinished Electrogalvanised @) (2) (3) Electrogalvanised Alloy plated Alloy dual flash Alloy plated Alloy plated + organic Triple plated Prefinished 10-11% Fe Zn/(10-20)% Fe Zn/12% Ni Source: Hoogovens Billiton Metals Page 34 Zn ZnFel ZnFe/ZnFe* Zn+10-25,m org Zn ZnFe ZnFe/FeZn ZnNi3 ZnNi+1,1m org ZnCr - CrOx Zn+10-25,um org result of the depressed condition of the construction and automobile industries, by 1986 it had more than surpassed its 1979 peak. The recessionary conditions prevailing in the early 1990's also had an untoward impact, but by 1993 a new high of 673,000 tonnes had been recorded as a number of new galvanising lines came onstream. Between 1990 and 1994 a total of twelve new galvanising lines, with a combined capacity of 3,885 million tpy came onstream in North America. As the table below indicates most of this new capacity was dedicated to the automobile market. Obviously the demand for zinc for galvanising purposes will be subject to cyclical fluctuations as the demand for galvanised products responds to activity in the construction and automobile sectors. However, there is little question that the underlying trend will remain positive. Not only will galvanised sheet continue to increase its penetration of the automobile market, but there are signs of increasing acceptance of galvanised material in construction end-uses. Table 2.16 Recent additions to North American galvanising capacity Type Capacity (tpy) Coteau duLac Hot-dip 135,000 Construction Hamilton Hot-dip 315,000 Automotive Windsor Hot-dip 360,000 Automotive I/N Kote New Carlisle Hot-dip 450,000 Automotive New Carlisle Electro 360,000 Automotive Armco Middletown Electro 270,000 Automotive Bethlehem Burns Harbor Hot-dip 405,000 Automotive Sparrows Point Hot-dip 215,000 Construction L-SII Columbus Electro 380,000 Automotive Protec Leipsic Hot-dip 540,000 Automotive Wheeling- Follansbee Hot-dip 215,000 Construction Nisshin Double G Jackson Hot-dip 240,000 Construction Coatings Sources: Metal Bulletin, American Metal Market Billiton Metals Page 35 In recent years coated steel has gained a growing, though still small, share of the residential construction market as environmental concerns and the dwindling of old-growth forests limits the availability and pushes up the price of lumber products. In 1993 only 13,000 (about 10%) of new housing starts had all-steel frames, but it is estimated that this may have risen to some 35,000 in 1994, while some 120,000 used steel in non load-bearing partition walls. Wishing to build on this success the American Iron and Steel Institute (AISI) calls for 25% of all new housing starts to use galvanised steel for their entire skeleton by 1997. An estimated six tonnes of steel goes into the average US home, so if about 1.5 million were built in a year this would equate to about 2.25 million tonnes of galvanised steel being consumed. While this may appear a rather optimistic projection there is little doubt that trends already in place, such as federal restrictions on harvesting old-growth timber, will benefit galvanised steel in the long run. Another area of potential growth is in bridge and highway applications. A considerable proportion of the US's 577,000 bridges are structurally deficient or functionally obsolete, according to the Department of Transportation. The cost of upgrading them is enormous and, given this, engineers are looking for ways to reduce the need for maintenance. Galvanising offers an obvious solution, and an increasing number of municipalities are turning to it. Table 2.17 Recent and planned major additions to Western European galvanising capacity Country Company Plant Type Capacity Start-up tpy) Austria Voest-Alpine Linz 290,000 1993 Germany Bregel Bremen 40,000 1993, Krupp Bochum 500,000 1992 Thyssen Beecker- 396,000 1992 werth Italy Ilva Toranto 200,000 1992 Netherlands Hoogovens Tjmuiden 100,000 1992 Spain Galvmed Aviles 250,000 1994 Sidmed Puerto de 250,000 Planned Sagunta Sources: Metal Bulletin, Various press reports In Europe too it was largely the demand of the automobile industry which resulted in a number of new galvanising lines being constructed in the early 1990's. At present there are almost 100 galvanising lines operational in Western Europe. Since [Billiton Metals Page 36 | 1990 some 18 lines with a combined capacity of almost 4 million tpy have been added. Many of the new galvanising lines are aimed specifically at automotive applications being generally wider and designed for lighter gauges. The production of galvanised steel in Japan also increased dramatically during the 1980's. By 1990 output stood at just over 13 million tonnes, compared with under seven million tonnes a decade earlier. Production actually peaked in 1991 at 15.775 million tonnes falling in the next three years as a result of contracting demand from the construction and automobile sectors. Nevertheless, the underlying trend undoubtedly remains positive, and capacity has continued to expand as steel companies have continued to add more lines. In 1960 there were some 49 batch-type hot-dipped galvanising lines with a combined capacity of around one million tonnes. By 1988 the number of these type of lines had fallen to seven, and their combined capacity to only 170,000 tpy. However, over the same period the capacity of continuous hot-dipped galvanising lines increased sharply. In 1960 output from 15 of these lines stood at about 600,000 tonnes, but by 1990 the capacity of the 42 lines then in operation stood at over 10 million tonnes and by 1992 a further six lines had been added raising capacity to 12 million tonnes. As Table 2.18 shows two further lines were added in 1993, taking continuous hot-dipped capacity to about 13 million tonnes. Figure 2.12 Changing nature of galvanising capacity in Japan BRS aS oo o 8 ©& w a o pt parr TTT TITYT Wy myn per RN w sas oo 8 number of units 8 q 3 Sl g 4 8 q a s J m qf 5 3 y + Spry ow o 6 A Capacity { Hot-dip batch Almost all of the continuous hot-dipped galvanising lines started up in recent years have a number of features in common:- large capacity wide coil in-line post - electroplating facilities This suggests that most of the lines were built to produce automotive sheet, according to Takeshi Adaniya of NKK corporation. It was the increasing demands of the automobile industry which also led to the considerable expansion of electrogalvanising capacity. At the beginning of the Table 2.18 Recent and planned major additions to Asian galvanising capacity Type Capacity Start-up (tpy) NKK Keihin Hot-dip 360,000 NKK Fukuyama Hot-dip 480,000 Nippon Steel Nagoya Hot-dip 480,000 Sumitomo Kashuma Hot-dip 360,000 Jindal Hot-dip South Korea Posco Kwangyang {2 Hot-dip {1 Electro Taiwan Yieh Phui Yu Liao 300,000 1995/1996 Ping Tung 200,000 1997 Thailand Thai Coated Bang Saphan Steel Sources: NKK, Various press reports Billiton Metals Page 38 1980's there were only 10 electrogalvanising lines with a combined capacity of about 1.8 million tonnes. Capacity now stands at 5.6 million tonnes from the 22 lines currently in operation. The growth in zinc consumption in galvanising in the rest of Asia over the past decade or so has been nothing short of spectacular. From 183,300 tonnes in 1979 it rose to 426,400 tonnes in 1993, at an average annual rate of growth of 6.2%. South Korea easily the largest single consumer in the region outside Japan, enjoyed the most marked growth. Although no figures are available before 1982, between that year and 1993 its consumption in this application more than tripled, rising at an average annual rate of 13.8%. Much of the growth in South Korea has occurred in recent years, which is hardly surprising given the tremendous increase in the production of galvanised sheet. As Figure 2.13 indicates the production of galvanised sheet in "other" Asia more than doubled between 1988 and 1993. Given the new galvanising lines scheduled to come onstream in the region it is a trend which is set to continue. Production of galvanised sheet in "other" Asia (thousand tonnes) UU 1989 1990 1992 fl S. Korea Ej India Other Asia Taiwan Indonesia Overall, then, we can only conclude that the outlook for galvanised products worldwide is bright, and that zinc consumption in this end-use will continue to increase both in absolute terms and as a proportion of total demand for the metal. Indeed, galvanising could well account for over 50% of total Western zinc consumption this year and could exceed 55% by the end of the decade. Over the next 2-3 years demand from the automobile and construction sectors is likely to be very good as they continue to recover from recession. Further ahead looms the threat of substitution from aluminium in car body panels, but the scope of this is by no means certain. Billiton Metals Page 39 ZINC IN BRASS AND BRONZE Brass and bronze is the second largest end-use for zinc, and accounted for around 18% of total demand in 1993. Demand fell quite sharply in the early 1980's as a result of the recession, but picked up again thereafter. The latest recession caused demand to ease again in the early 1990's, although the shortfall was not as marked as a decade earlier, because of the recession's unsynchronised nature. Between 1979 and 1993 demand for zinc in brass and bronze fell slightly at an average annual rate of 0.5%. Brass is an alloy of copper and zinc and its qualities include corrosion resistance, electrical conductivity and malleability. Its principal use is in plumbing fittings, heating and air conditioning components. Hence, the performance of the construction sector is of particular importance to this end-use. Falling demand in the US has tended to have a dampening effect on demand and although increases elsewhere for the most part have offset this the potential for growth in the future is likely to remain constrained, with small fluctuations envisaged in line with changes in the economic environment and, more specifically, the performance of the construction industry. We expect demand to pick up slightly next year once the anticipated synchronised economic recovery is underway. Table 2.19 Consumption of zinc in brass and bronze by major consuming countries (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 19921993(e) Canada 61 95 13.1 73 100 109 73 36 3.5 United States 192.1 280.0 326.4 258.7 314.6 292.7 304.7 . 9 261.1 Total North America 198.2 289.5 339.5 266.0 324.6 303.6 312.0 264.6 282.0 France 61.7 596 62.1 541 57.0 543 61.0 Germany * 141.2 156.4 175.2 169.9 176.1 175.3 190.6 Italy 110.1 113.5 127.2 1308 141.4 1474 1718 Netherlands 33.7 31.0 42.3 32.7 32.3 30.0 35.0 United Kingdom 59.3 566 61.8 58.3 55.1 55.8 541 Total Western Europe 480.0 477.7 507.6 484.0 503.0 497.5 5443 (including others) Japan 101.0 108.0 119.7 117.8 115.5 119.6 120.1 121.8 129.5 132.1 1106 South Korea - - 19.0 15.0 22.0 29.0 29.0 28.0 320 320 30.0 South East Asia * 17.9 230 10.2 97 83 94 91 195 220 11.0 11.0 3.2 278.8 Total including others 830.8 925.7 1056.7 956.3 1037.8 1040.3 1081.4 1073.1 1096.5 1054.6 1052.3 (year on year % change) (-13.2) (+11.4) (414.1) (-9.5) (+8.5) (+0.2) (+4.0) (-0.8) (42.2) (-3.8) (-0.2) * Includes former East Germany from 1991 ** Prior to 1986 includes Thailand Source : ILZSG. Billiton Metals Page 40 ZINC IN ALLOYS As the third largest end-use for zinc alloys accounted for 14.4% of total demand in 1993. Zinc alloys are used in diecastings, primarily in the construction and automobile industries, although they are also used in audio-visual equipment, cutlery, industrial machinery and scientific instruments. Given that demand for this end-use is heavily dependent on the two most important interest-rate-sensitive industries it is no great surprise that it has suffered in times of recession. However, substitution has also had a negative impact on demand in the past couple of decades. In a bid to increase fuel efficiency in automobiles, for example, weight reduction has resulted in lower usage in zinc diecasting. The International Lead and Zinc Study Group estimates that between the early 1970's and the early 1990's the amount of zinc in automobiles has fallen from an average of 23kg to 10kg. However, attempts are being made to develop more competitive zinc alloy castings. One such example is ACuZinc (5-11% copper, 2.8-4% aluminium, the remainder being zinc). These alloys reportedly are more durable and lower the thickness of automotive diecastings in comparison with many other zinc alloys. Consumption of zinc in alloys by major consuming countries (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993(e) Canada 221 29.7 14.7 15.7 124 153 223 244 22.5 208 21.1 20.7 United States 207.1 222.5 242.1 227.1 236.7 229.7 249.9 224.2 210.1 199.4 219.6 228.0 Total North America 229.2 252.2 256.8 242.8 249.1 245.0 272.2 248.6 232.6 220.2 240.7 248.7 France 452 448 432° 43.3 42.5 454 475 476 46.7 42.0 40.0 40.0 Germany * 69.8 75.0 78.7 79.2 80.0 82.2 87.6 93.7 102.9 103.9 95.2 62.7 Italy 52.8 53.9 55.1 53.2 60.3 614 64.1 68.0 716 688 63.3 62.6 Spain 20.3 22.1 22.6 21.3 22.5 23.0 274 28.7 28.7 285 268 21.7 United Kingdom 375 39.7 34.9 43.2 448 440 428 43.1 444 454 45.2 465 Total Western Europe 208.0 215.8 256.6 262.6 272.3 278.4 292.8 306.6 321.1 315.7 298.5 261.9 (including others) Japan 109.7 125.8 125.2 139.3 134.8 117.1 113.2 101.9 124.3 119.1 1028 93.7 South Korea - - 80 10.0 12.0 200 18.0 22.0 26.0 32.0 30.0 30.0 SE Asia 38.2 505 538 55.6 60.8 65.0 60.0 486 37.0 102.0 108.0 121.0 Total including others 668.4 727.1 747.5 762.8 785.1 782.5 815.8 794.9 805.6 841.3 834.0 815.7 (year on year % change) (-10.3) (48.8) (+2.8) (+2.0) (+2.9) (0.3) (+4.3) (-2.6) (+1.3) (44.4) (-0.9) (-2.2) * Includes former East Germany from 1991 Source : ILZSG. Billiton Metals Page 41 ee It is clear, therefore, that this end-use is not giving up ground to substitute materials such as aluminium, plastics and magnesium without a battle, although they are expected to gain some ground. As a general rule, though, demand is likely to respond to the economic environment and subsequent developments in the automotive and construction sectors. ZINC IN CHEMICALS The end-use's market share has held pretty steady over the years and it accounted for 8.2% of total demand in 1993. Between 1979 and 1993 demand for zinc in chemicals barely changed, rising at an annual average rate of just 0.4%. In the form of zinc oxide its most significant use is in the tyre industry as it is an essential element in rubber manufacturing and accelerates the hardening process. Hence, demand for zinc in this end-use broadly responds to the performance of the automobile industry. Other uses include paints, cosmetics, pharmaceuticals and in plastics to protect them from exposure to ultra-violet light. The fact that the US is by far the largest consuming country, accounting for around 34% of total demand, should continue to underpin in the foreseeable future, particularly as the economies of Western Europe are now picking up and even Japan is starting to show signs of improvement. The importance of rubber tyres to this application should also mean that demand benefits from the ever growing automobile population. However, we still do not expect growth levels to reach sensational levels. Consumption of zinc in chemicals by major consuming countries (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993(e) United States 129.8 133.5 148.8 140.4 126.5 145.9 128.8 130.6 126.4 121.2 140.7 159.0 France 44.2 45.0 48.7 49.5 42.9 416 416 43.0 389 349 294 28.0 Germany * 32.6 31.7 424 478 494 485 506 51.1 476 54.9 670 65.0 Italy 27.3 27.6 27.1 29.3 28.9 30.9 314 33.1 31.5 314 32.2 328 United Kingdom 18.7 20.6 196 234 23.6 228 23.3 21.7 21.1 203 224 20.7 Brazil 14.2 126 144 194 23.2 27.3 21.7 31.6 203 185 17.0 27.0 Japan 39.6 48.7 466 51.2 47.7 34.9 46.7 42.0 42.7 48.2 39.6 35.0 Total including others 345.5 363.4 402.1 427.9 413.7 431.0 435.4 447.5 424.4 424.1 444.2 461.4 (year on year % change) (-10.0) (+5.2) (+10.6) (+6.4) (-3.3) (+4.2) (41.0) (42.8) (-5.2) (-0.1)(+4.7) (+3.9) * Includes former East Germany from 1991 Source : ILZSG [Billiton Metals Page 42 Looking further ahead one potential opportunity is the use of zinc oxide in batteries in electric vehicles, although it has to be said that lead-acid batteries are currently in a better position to benefit at least in the medium term, unless further dramatic advances can be made to swing the balance in zinc's favour. ZINC IN SEMIS Consumption of zinc in this end-use held up reasonably well in the early 1990's. Indeed latest figures from ILZSG indicate that demand for zinc in semis grew by an impressive 16.3% in 1993 as a result of strong demand in Germany. Nevertheless, between 1979 and 1993 it still only grew at an annual average rate of 0.4%. This end-use comprises mainly rolled sheet and strip and is principally used as zinc sheet in roofing and guttering. France and Germany are by far the major consumers, together accounting for around 55% of demand in 1993. Demand in the latter continued to rise in the early 1990's, benefitting from the re-unification of Germany. Meanwhile, zinc strip for coinage and dry cell batteries are two other important applications for zinc in semis, particularly in the US. Demand there was boosted in the early 1980's by the introduction of the zinc penny, although it levelled off once replacement coins only were needed. However, the dry cell battery market has tended to lose out in recent years to longer life cells. Nevertheless, as we noted above France and Germany are the most significant consumers of zinc in semis and the performance of their respective construction industries are likely to continue to determine future trends in demand. Consumption of zinc in semis by major consuming countries (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993(e) United States * 37.2 563 569 48.0 30.1 36.7 51.0 53.0 51.0 47.0 50.0 60.0 France * 105.6 105.7 925 882 903 91.1 994 89.6 92.1 924 89.4 89.0 Germany * ¢ 65.9 74.3 74.1 63.9 69.3 719 744 70.1 85.0 95.1 111.9 1415 Japan 29.3 30.6 288 27.7 256 248 215 129 NA NA NA 18 India 20.0 17.1 178 18.7 179 184 194 179 172 168 16.6 16.0 SE Asia * 444 41.1 314 34.0 25.2 260 260 22.1 240 13.0 13.0 14.0 Total including others 408.7 421.9 387.1 369.0 348.3 357.3 386.5 356.8 354.6 348.9 358.6 416.9 (year on year % change) (42.5) (43.2) (-8.2) (-4.7) (-5.6) (+2.6) (+8.2) (-7.7) (-0.6) (-1.6) (42.8) (+16.3) * Includes chemicals and miscellaneous Includes former East Germany from 1991 Source : ILZSG Billiton Metals Page 43 Table 2.23 Consumption of zinc in dust by major consuming countries (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993(e) United States 25.3 348 40.7 27.1 243 286 24.2 249 241 228 210 25.0 Belgium 235 295 33.6 32.6 32.2 32.6 37.7 409 526 524 43.7 44.0 Spain 230 23 63 36 40 37 31 26 30 25 21 0.7 United Kingdom 98 87 79 79 65 56 5.7 62 64 61 58 5.6 Total including others 66.8 82.6 92.3 744 70.3 73.6 73.4 762 881 878 766 873 (year on year % change) (-20.5) (-1.7) (+11.7) (-19.4) (-5.5) (44.7) (-0.3) (+3.8) (415.6) (-0.5) (-12.6) (+14.0) Source : ILZSG ZINC IN DUST AND MISCELLANEOUS The amount of zinc used in dust and miscellaneous applications accounted for just 4.3% of total demand in 1993. Demand fell sharply in both in 1992 but while demand for zinc dust began to pick up again in 1993 it continued to fall in miscellaneous uses. In the case of the latter the decline has been to blame on plummeting US demand. Zinc dust (powder) is used in zinc coating, although usage has never been that significant, despite its corrosion-resistant qualities. The outlook for zinc in zinc-rich paint has some growth potential though, insofar as it is cheaper than galvanising. Both of these end-uses are pretty insignificant to the overall demand for zinc and we do not envisage any major developments in years to come. It remains to be seen whether US demand in miscellaneous uses will pick up again. Table 2.24 Consumption of zinc in miscellaneous uses by major consuming countries (thousand tonnes) 1882 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1933(e) Canada 11.6 8.2 26.1 30.1 33.8 33.2 40.6 40.1 322 223 244 24.1 United States 19.6 20.2 22.0 20.2 315 335 293 34.3 19.6 23.2 3.7 5.1 France 5.2 5.5 5.1 11.1 97 52 62 59 39 54 39 3.0 United Kingdom 12.9 10.8 158 13.5 135 12.7 126 13.6 138 14.1 150 178 Japan 37.3 28.6 24.7 29.9 25.1 169 27.7 34.2 51.6 595 548 47.9 SE Asia 6.0 8.6 106 83 114 168 168 106 3.0 220 21.0 19.0 Total including others 116.7 105.4130.2 137.5 151.2 148.4166.0 165.9154.5 193.7 167.2 155.6 (year on year % change) (-18.6) (-9.7)(+23.5) (_5.6)(+10.0) (-1.9)(+11.9) (-0.1) (-6.9)(+25.4)(-13.7) _ (-7.0) Source : ILZSG Billiton Metals Page 44 OUTLOOK FOR LEAD AND ZINC CONSUMPTION Economic outlook Going into 1995 the economic outlook facing the lead and zinc markets is better than it has been for some years. As the table below indicates the period of unsynchronised activity during the early 1990's had an untoward impact on economic growth in general and industrial production in particular. As we have noted earlier the decline in IP for the OECD as a whole has been nowhere near as severe as that experienced in previous cyclical downturns. In 1990/91 when the English-speaking economies fell into recession growth in Japan and continental Europe remained robust. However, the subsequent rebound in industrial activity in the US, Canada and the UK occurred at a time when a marked slowdown was underway in Japan and the rest of Europe. Perhaps the most notable feature of the OECD countries last year was the ongoing strength of the US economy. Having expanded by 2.3% in 1992 and 3.0% in 1993 we estimate that it grew by some 4.0% last year, and that industrial production rose by 6.5%. This was achieved despite the imposition of six interest rate rises by the Federal Reserve during the course of 1994. However, even in the absence of further rate rises (a strong possibility) we believe the rate of growth enjoyed by the US Table 2.25 . Economic indicators in the major industrialised economies (% change year-on-year) 1990 1991 1992 1993 1994(e) 1995(f) 1996(£) GDP/GNP USA Japan Germany France UK ltaly Canada OECD Total Industrial production USA Japan - Germany’ . France UK ltaly Canada OECD Total Billiton Metals Page 45 economy last year to be unsustainable, and that a period of somewhat slower, albeit still healthy, growth is in prospect over the next two years. The same is true of the UK and Canada, where the cycle is similarly advanced. Conversely, we expect the economies of continental Europe to expand more rapidly this year. The strong performance of the German economy immediately following reunification gave way to a period of considerably weaker economic activity in general and industrial production in particular. The German economy contracted by 1.7% in 1993, and in that year IP collapsed by 7.4%, its second consecutive year of decline. As 1994 wore on, however, it became clear that it was slowly but surely pulling out of recession, initially as a result of strong export growth but increasingly supported by burgeoning domestic demand. Elsewhere in continental Europe the picture has been mixed, but generally speaking recoveries got underway in most countries, albeit rather haltingly in some cases. Nevertheless, the outlook brightened as 1994 wore on, and towards the end of the year the European Commission raised its growth forecast for the EU in 1995 to 2.9%, followed by 3.2% in 1996. In our view these estimates may be rather conservative, and this is reflected in our forecasts in Table 2.25 on the previous page. The Japanese economy has been the laggard in this latest cyclical upturn. The boom in investment activity in the late 1980's left it vulnerable to any reduction in demand growth such as that which followed the collapse of the property sector an ensuing deterioration in consumer and business confidence. Three stimulatory fiscal packages introduced in 1992/1993 were ineffectual, but a fourth, implemented during the course of last year seems to have been more effective. During the final quarter of last year it became clear that the slow recovery underway in Japan was gaining momentum, and the consensus is that it will continue to do so this year and next. Nevertheless, the general expectation is that a steady pick up in economic activity is in prospect, rather than the marked rebound experienced in previous cycles. There is little doubt that the economic performance of the industrialised world during the early 1990's has been hampered by a lack of co-ordination in policy making, coupled, in a number of cases, with a marked reluctance to employ fiscal measures to boost demand. Nevertheless, the benefits of low interest rates have already been experienced in the English-speaking economies and this factor, combined in some cases with stimulatory fiscal packages, is percolating through elsewhere. Growth in Europe and Japan will also boost US exports, and help to offset the impact of the pre-emptive interest rate rises designed to limit inflationary pressures in that country. A number of other economies outside the OECD area still have considerable scope for further growth. Particularly those in South East Asia, such as South Korea, Taiwan and Malaysia all of which continue to benefit from high levels of direct foreign investment, as well as the impact of the strong yen on their export prospects. Industrial production growth in these economies could be as high as 10% in 1995 and 1996. Although South America will not achieve these rates, a number of countries are benefitting from the ongoing strength of their neighbours to the North, and a period of strong growth is in prospect for the region. Billiton Metals Page 46 Demand Outlook Not only will both metals benefit from the expected increase in the underlying level of economic activity in the world economy, but the intensity of their use will continue to grow in a number of important sectors. As we have noted earlier demand from the battery sector will continue to underpin lead demand while more and more zinc will be employed in galvanising. We also believe that in a number of other end-uses the declines experienced as a result of the two oil-induced recessions have pretty well run their course and, therefore, the scope for further downside potential is limited in these applications. In terms of end-use markets one area which will benefit the consumption of both lead and zinc is the automobile industry. Although the production of motor vehicles is a cyclical activity, which responds to changes in economic environment, the underlying trend is undoubtedly positive. During a period of economic growth, such as we are experiencing at the moment, automobile production rises and this of course increases the demand for lead in batteries and zinc in galvanising as well as some smaller applications, particularly die castings and zinc oxide in tyres. Table 2.26 Automobile production in the West (million units, cars plus commercial vehicles) 1989 1990 1991 1992 1993 1994(e) 1995 (f) Industrial countries USA 10.870 9.780 8.811 9.704 10.883. 12.500 12.000 Canada 1.965 1.926 1.888 1.958 2.238 2.335 2.000 Total North America 12.835 11.706 10.699 11.662 13.131 14835 14.000 Japan 13.026 13.487 13.245 12.499 11.228 =610.450 = 11.500 Germany 4.852 4.977 5.034 5.194 3.991 4.300 5.000 France 3.920 3.769 3.611 3.768 3.156 3.500 3.800 ltaly 2.221 2.121 1.878 1.686 1.268 1.350 1.600 UK 1.626 1.566 1.454 1.540 1.569 1.650 1.650 Spain 2.046 2.053 2.082 2.122 1.772 2.100 2.150 Total Western Europe 14.901 15.468 14.894 15.128 12.666 13.850 15.200 (including others) Non-mature economies Brazil 1.013 0.915 0.960 1.074 India 0.337 0.364 0.355 0.324 Korea 1.129 1.322 1.498 1.730 Total Western world 45.100 45.250 43.750 44,250 (including others) Source: Society of Motor Manufacturers and Traders, various press reports, Billiton Metals’ forecasts. Billiton Metals Page 47 The unsynchronised nature of economic activity in the major economies during the early 1990's is evident from Table 2.26. The production of motor vehicles (cars and CVs) in the West peaked at 45.25 million units in 1990, but at that time production in North America was on the slide. Production on that continent bottomed out in the following year, but by that time signs of weakness were evident in both Europe and Japan. Although North American production recovered strongly in 1992 and again in 1993 this was more than offset by sharp declines in both Japan and Western Europe, such that by the latter year total Western output had fallen to 42.75 million units. . The market staged a somewhat patchy recovery last year, during which we estimate production reached 45 million units. It did so despite ongoing weakness in Japan which recorded its fourth consecutive year of decline. Fortunately output in North America continued to grow strongly, and Europe began to recover from its 1993 slump. In our view the prospects for this industry look brighter still in 1995 and 1996. Although North American production is likely to tail off this year as a result of rising interest rates, European output was constrained last year by the need to work- off excess inventories accumulated in 1993 and there is ample scope for further growth now that this has occurred. Also, there were signs towards the end of last year of a pick-up in Japanese demand, and clearly there is room for considerable improvement in this market. Elsewhere in the world production has also been rising, and this trend looks set to continue. In Brazil and India production has finally started to pick-up after a number of years of stagnation, but it is South Korea which has recorded the most remarkable performance. Automobile production in that country rose from fewer than 100,000 units in 1980 to over one million in 1988 and over two million last year. Production will continue to increase, and it should be noted that Taiwan and Malaysia also have plans to expand their output, albeit on a more modest scale. We believe that as a result of these trends automobile production this year will exceed 47 million units, thus recording a new peak. Both lead and zinc will benefit considerably. In the case of the former the only sector to benefit directly will be lead-acid batteries, but zinc use will increase in a number of sectors such as galvanising, die castings and chemicals. Table 2.27 . . ws sae . Housing starts in the major industrialised economies (thousand units) 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994(e) 1995(f) USA 1100 1072 1715 1756 1745 1807 1622 1488 1376 1193 1014 1200 1288 1500 1500 Japan 1152 1146 1136 1187 1236 1364 1674 1685 1663 1708 1370 1403 1486 1500 1650 France 400 343 332 283 295 295 301 322 336 306 299 272 257 300 350 UK 152. 192 217 194 196 206 223 246 200 161 161 157 184 210 225 Canada 178 126 163 134 166 199 246 222 215 181 156 168 156 150 150 OECD Total 3539 3320 4074 4067 4158 4362 4529 4468 4501 4171 3545 3775 3895 4250 4500 Source: OECD, Billiton estimates Billiton Metals Page 48 The other major sector which will provide scope for growth in both lead and zinc consumption is of course the construction industry. Both residential and commercial construction in the OECD area suffered as a result of recessionary conditions in the early 1990's. As Table 2.27 indicates housing starts fell sharply between 1989 and 1993, and although they have picked up since they remained below their peak last year. Nevertheless, we believe the recent period of low interest rates will provide a basis for further revival next year, particularly in the Japanese market which remains well below its peak level. Figure 2.14 illustrates the unsynchronised movements of the construction industry in the major industrialised economies in recent years. During the period 1990-1991 activity in the English speaking economies slumped, while in Japan and continental Europe it remained robust. However, during the following two years the level of activity in the English speaking economies began to level off and then recover, at a time when Japan and continental Europe slumped. Nevertheless, clear signs emerged last year of these countries bottoming out. Figure 2.14 Indices of Construction (1985 = 100) 1981-1994 Billiton Metals Page 49 One ongoing positive factor will be the role of the non-mature economies which, as we noted earlier, now account for some 24% of Western lead consumption and 27% of zinc, compared with 14% and 19% respectively in 1979, at the time of the last cyclical peak. Although countries such as South Korea and Taiwan already have per-capita consumption levels on a par with the more advanced industrialised countries, this to a considerable extent reflects their high propensity to export manufactured goods. There is every indication that these economies will continue to expand their industrial bases not only to satisfy export markets, but increasingly to meet strong domestic demand. Also, there are a number of other countries (particularly in South East Asia) which presently have low per-capita consumption which are set to experience very rapid growth over the next decade. As the table below indicates, we believe that Western world demand for both metals will continue to grow both this year and next. Lead demand expanded strongly last year and we expect the rate of growth to slow somewhat, but the recovery in zinc demand was rather constrained in 1994 and we believe that it will rebound more strongly this year. In both cases a slowing in North American growth will be more than offset by strong performances from Western Europe and Japan. Table 2.28 The outlook for Western world lead and zinc demand Lead <= Acual ———-____——-— —— Forecast —— 1991 1992 1994(e) 1995 1996 North America 1325 1376 1620 1630 1600 Western Europe 1723 1611 1560 1625 1650 Japan 422 401 360 380 425 Australasia 62 63 80 80 75 Other 1185 1250 Total 4900 5000 Zinc a a -—— Forecast —— 1990 1994(e) 1995 1996 North America 1114 1345 1410 1425 Western Europe 1898 2004 ; 1900 2000 2035 Japan 814 845 700 775 850 Australasia 130 130 175 180 Other 1244 1348 1580 1710 Total ” 5200 5379 5700 6200 Sources: ILZSG, Billiton Metals' forecasts. Billiton Metals Page 50 III THE PRODUCTION OF LEAD AND ZINC RECENT TRENDS IN LEAD AND ZINC MINE PRODUCTION The production of mined zinc peaked in 1992 when it totalled 5.678 million tonnes. However, it fell sharply in 1993 by 7.9% to 5.227 million tonnes following a series of cutbacks and closures implemented by a number of Western producers in the face of depressed market conditions. Lead mine production recorded an even sharper decline of 13.1% to stand at just below two million tonnes in 1993 having already fallen by around 3.6% in 1992. Last year output of mined zinc continued to fall, albeit not as sharply as the previous year, whilst lead output apparently actually recorded a slight increase. Zinc and lead mine output in North America, the largest producing region in the West, fell particularly sharply in 1993, from 1.877 million tonnes a year earlier to 1.520 million tonnes and from 751,000 tonnes to 545,000 tonnes respectively. One of the most dramatic events during this period was the closure of Curragh Resources’ Faro and Sa Dena Hes lead-zinc operations in Canada and the company's subsequent liquidation. Although these mines were operating below their theoretical capacity levels the amount of output lost has still been significant. Anvil Range Mining, which comprises former executives of Curragh, has since purchased Faro and the mine is scheduled onstream in the second half of 1995, albeit at a reduced rate of 140,000 tpy of contained zinc and 100,000 tpy contained lead. Meanwhile, a consortium, consisting of Korea Zinc (50%), Cominco (25%) and Teck (25%) purchased the Sa Dena Hes mine and Cirque deposit from the receiver. However, there are no plans to reopen the former or develop the latter mine until prices have improved significantly. Also, in Canada, Noranda made some not insignificant cutbacks at a number of its mining operations in 1993, whilst Cominco closed its Sullivan mine for an extended period in the summer and again over the Christmas holiday period. Reopening of Brunswick Mining and Smelting's (64% Noranda) Heath Steele mine (55,000 tpy zinc, 15,000 tpy lead), which was closed in July 1993, was deferred until late 1994 in the face of continued depressed prices. Against this backdrop, more specifically in the case of zinc, some other small mines have ceased operations permanently as a result of falling ore grades. Nevertheless, offsetting this the Louvicourt mine came onstream in the second half of 1994 and was expected to reach its full capacity of 29,000 tpy zinc by the end of that year. Looking further ahead San Andreas Resources' Prairie Creek is tentatively due onstream in early 1996 and it will have an eventual capacity of 60,000 tpy zinc and 35,000 tpy lead. Having suffered a setback in the mid-1980's US lead and zinc mine output virtually doubled in 1990 from 1989 levels following the start-up of the huge Red Dog operation in Alaska. Output at the latter has generally continued to rise since as a result of higher ore throughput and metal recoveries. However, cutbacks implemented at a number of smaller operations, including Greens Creek and Doe Run served partially to offset the increase at Red Dog. The run down of Cominco's Magmont mine, which closed in May 1994, meanwhile, will be offset by increases at Asarco's Sweetwater and West Fork mining operations. North American lead mine output is likely to have recorded a further small decline in 1994 whilst higher US Billiton Metals Page 51 Table 3.1 Mine production of lead in the Western world 1982-93 (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 Se North America Canada 341 251 307 285 349 414 367 275 241 276 344 182 USA 530 466 «863350 4240 353 318 394 419 497 477 407 363 Total 871 717 642 709 702 732 761 694 738 753 545 Western Europe Denmark 26 22 18 18 16 19 23 23 17 - Germany 30 30 27 26 22 23 18 9 8 7 Greece 19 20 22 20 21 21 =26 25 26 32 Ireland 39 34 37 35 36 3432 32 35 40 Italy 16 24 21 16 11 12 «+17 15 16 14 Spain 73 82 96 87 82 82 74 63 62 50 Sweden 80 79 81 76 89 89 8685 82 85 87 Yugoslavia 113 94 «95 86 83 85 Others 20 17 16 19 14 14 +10 10 9 9 Total 416 422 390 380 345 341 324 Latin America Argentina 33 32 29 Bolivia 12 8 7 Brazil 20 18 19 Honduras 15 19 21 Mexico 168 184 Peru 205 Others 2 2 4 460 29 27 23 24 12 16 19 21 17 13 9 7 11 6 4 9 163 #180 165 192 1 1 1 418 446 445 RBA OR 20 19 18 20 47 49 12 i 31 24 9 1 9 8 146 = 142 23 25 26 25 31 17 11 9 17 12 23 19 19 18 19 15 16 15 12 16 29 24 22 17 13 10 14 18 12 10 6 5 2 3 3 123 «114 104 = 104 BSuckaBSB _ 466 418 § 457 499 579 575 105 97 = 101 69 63 65 71 72 35 34 43 28 24 25 21 20 89 96 94 90 78 69 76 77 24 15 24 14 12 12 10 6 14 i 10 6 7 4 3 2 267 «253 272 219 207) 184 #175 181 177 206 Western Total 2561 2469 2366 2499 2349 2371 2325 2254 2367 2385 2298 1998 Source : International Lead and Zinc Study Group. Billiton Metals Page 52 output suggests that zinc mine output rose quite significantly over the same period. Further increases are anticipated for both metals in 1995 as new capacity comes onstream and temporarily closed operations resume production. However, the impact of this is likely to be of more significance to the zinc market. Western Europe's lead and zinc mine output has been falling since the mid-1980's as reserves have become depleted at several operations. Austria, Denmark and Germany have disappeared from the mining scene altogether. Indeed, France is in danger of doing so too, following the closure of Metaleurop's Saint Salvy mine late last year. That country's hopes are now resting on the delayed Chessy project (eventually 25,000 tpy zinc, 7,000 tpy lead), but the exact timing of the mine's start- up remains uncertain. Depressed market conditions meanwhile forced Italy's ENI to close its mines in early 1993 and although drought conditions initially were responsible for the closure of Boliden's Aznalcollar mine in Spain in May 1993, it subsequently remained closed until July 1994 in the face of low prices. However, the company now has plans to develop the nearby Los Frailes deposit which should raise the mine's capacity to 130,000 tpy zinc and 50,000 tpy lead by 1997. In the meantime, the ongoing strife in the former Yugoslavia has led to a sharp decline in output there in recent years. Looking further ahead, though, some new capacity is scheduled onstream which should at least stem the earlier decline, though again more so in the case of zinc than lead. After several years of delay the Galmoy mine in Ireland is now set to come onstream by mid-1996 and at full capacity will produce 50-60,000 tpy of contained Figure 3.1 Lead mine production in the Western world (1980-1993) (thousand tonnes) I North America Latin America El Africa fi Australasia [8] Western Europe —_ Asia Billiton Metals Page 53 Mine production of zinc in the Western world 1982-93 (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 North America Canada 1189 1070 1207 1172 1291 1482 1347 1216 1203 1157 1325 1007 USA 330 293 277) =—-252-—S 221 233 «256 = 288 = 543 547 552 «4513 Total 1519 1363 1484 1424 1512 1715 1603 1504 1746 1704 1877 1520 Western Europe Austria 19 20 21 22 16 16 17 15 17 15 18 Denmark 80 79 71 70 62 66 77 71 48 : - Finland 55 56 60 61 60 55 64 58 52 55 31 France 37 34 36 41 40 31 31 27 24 27. «17 Germany 106 «6113113 104 99 75 64 59 54 14 Greece 20 21 23 21 23 21 21 25 27 30-6 Ireland 167 186 =. 206 182 177 #177 «#169 = 166 Italy 39 43 42 45 26 33 38 44 42 3731 Norway 32 32 27 28 27 22 18 15 18 19 21 Spain 168 176 229 234 227 273 278 266 257 8 265 Sweden 187 205 = 208 219 #193 163 158 United Kingdom 10 9 7 5 6 6 5 6 6 1 Yugoslavia 84 87 86 89 90 71 71 75 76 74 Total 1004 1061 1129 1089 ©1065 998 950 923 Latin America Argentina 37 37 35 36 37 43 39 39 Bolivia 46 47 38 39 55 75 Brazil 71 73 79 98 99 Chile 5 6 19 20 19 18 25 31 Honduras 24 38 42 12 24 34 29 38 Mexico 251 288 =. 284 Peru 507 485 Others 2 0 0 Total 943 27 40 251 58 4 34 8 422 Australasia Australia 884 Africa Algeria 1 12 13 13 9 6 6 4 4 4 Morocco 7 13 15 13 10 1 16 18 27-23 Namibia o - - - - - - 41 36 36 South Africa* 137. 1340-128 138)=S 153) 125s« 116 75 64 «72 8 7 6 4 6 9 10 7 5 2 75 75 74 81 75 76 73 62 43 45 42 58 50 33 36 30 28 35 2 19 280 299 286 282 289 257 249 242 204 201 Western Total 4807 4817 5099 5152 5067 5316 5052 5094 5396 5586 5678 5227 * Until 1990 includes Namibia Source : ILZSG Billiton Metals Page 54 zinc and 5,000 tpy of contained lead. We have already noted the Chessy project in France but returning to Ireland, plans were mooted at one stage to expand the existing Tara mine although it remains to be seen whether this will be realised. The Lisheen project (180,000 tpy zinc, 25,000 tpy lead) may also start-up in 1997. Meanwhile, in the UK the Parys Mountain project (25,000 tpy zinc, as well as some lead) has also been subject to considerable delay and still looks to be a long way off completion yet. Latin America was the only significant region where zinc mine production actually recorded an increase in 1993, despite cutbacks made at some operations in Bolivia, Mexico, Peru and Honduras. Lead mine output meanwhile fell in both 1992 and 1993. In the former year the shortfall occurred in Peru and in the latter in Mexico. Peru accounts for around 50% of Latin American zinc mine output and it produced 665,000 tonnes of contained zinc in 1993, constituting a 10.5% increase from 1992 levels. In part the increase in the region's zinc output can also be attributed to Penoles' Bismarck mine in Mexico which came onstream in 1992 and built up to full capacity the following year. In 1994 the company, in conjunction with Japan's Dowa Mining, started production at the Tizapa mine, which is expected to attain its full capacity of 15,000 tpy zinc and 5,000 tpy lead this year. In our view zinc mine production in Latin America is likely to have recorded a further slight increase in 1994, given the aforementioned development combined with the fact that the Real de Angeles mine in Mexico, which was out of action for much of 1993, was brought back onstream, albeit at a reduced rate, in the latter part of that year because of high silver prices. Zinc mine production in the Western world (1980-1993) (thousand tonnes) Litt q 4 Hl North America Western Europe Asia Ed Latin America Ei Australasia El Africa Billiton Metals Page 55 Table 3.3 Location Mine Temporary Canada $a Dena Hes Sullivan Various M Falls, Greens Creek Missouri Mines Van Stone Major mine cutbacks and closures Ownership Pb Curragh Resources 80 Curragh Resources 40 Cominco Noranda Westmin Resources Kennecott (54%) Doe Run Equinox Resources Monteponi/ ENI Masua Aznalcollar Boliden Various Real de Angeles Various El Mochito Pasminco Mt Isa/ Hilton ZCCM Snow Lake Magmont Bleiberg Saint Salvy Exminesa Mexico La Minita Peru Santander Japan Matsumine Thailand Mae Sot Various - Minera Real de 12 Angeles San Francisco delOro 6 Breakwater Resources 5 Broken Hill 10 MIM Kabwe Hudson Bay Cominco Bleiberger Berg werk Metaleurop La Troya/Rubiales Minera Capela Cia de Minerales Hanaoka Mining Padaeng Industry 93 Estimated capaci (thousand tpy containe 120 120 58 22 90 30 40 94 Ymetal) Remarks Closed since April 1993. Scheduled to reopen under new management in H2 1995. Under new ownership. No plans to reopen yet. Cutback at Heath Steele extended into late 1994. Reopened September 1994 after 16 month long strike. Production cut to reduce concentrate stocks. Placed on care and mainten- ance in March 1993. Closed May 1993, ed Jaly 1994.” “OPER Closed April 1993, but subsequently restarted in August at reduced rate. Restructuring of operations, but capacity Set to rise again. Operating and industrial problems resulted in losses. Closed June 1994. Closed early 1994. Closed May 1994, but should be offset by increases at Asarco. Closed at end-1993. Scheduled to close late 1995. 15,000 tpy capacity Zn in 1994. Closed Q1 1993. Closed Q1 1994. In 1993 had capaci moduce. 36 000 Zeand’5,000 tpy PY Closed end- 1094, Had capacity to produce 65,000 t apaciyseP Py Billiton Metals Page 56 Peruvian zinc production is expected to receive a further boost in 1996, with the start up of the Iscay Cruz project, which eventually will have the capacity to produce 60,000 tpy of zinc-in-concentrate. Meanwhile, Bolivia's Comibol reportedly recently started production at the Bolivar mine (mainly zinc) which is expected to produce 27,000 tpy of contained zinc this year. In the case of lead mine output, the additions, to capacity are less significant, but nevertheless these, combined with the restart of Real de Angeles, proved sufficient to halt the earlier decline in output in the region in 1994. Asia has never been a particularly significant producer of mined zinc or lead but the demise of the Japanese industry did not help matters in the mid-late 1980's. However, India has now supplanted Japan as the region's largest producer following the start-up of Hindustan Zinc's Rampura-Agucha mine (90,000 tpy zinc, 7,000 tpy lead) in 1991. Furthermore, the company reportedly has plans to increase concentrate production at the latter by 50% by 1997/98. One important development in 1994 in the case of zinc was the start-up of the Cayeli mine in Turkey, which is expected to attain its 40,000 tpy capacity by 1996. Meanwhile, yet another Japanese mine - Matsumine - was forced to close early last year, and in Thailand Padaeng Industry's Mae Sot zinc mine, was scheduled to close at the end of 1994. In recent years Australia has begun closely to challenge Canada for its position as the largest single producer of mined zinc in the Western world, whilst it is already the most significant producer of mined lead. In fact the country matched Canadian zinc mine output in 1993 when it produced 1.007 million tonnes. Australian production actually peaked at 1.048 million tonnes in 1991, but fell back the next year, partly as the result of a two-thirds cutback at the Elura mine and the closure of Que River. Nevertheless, output in 1993 was still significantly higher than in the late 1980's, as the result of the start-up of the Hilton, Thalanga and Golden Grove/Scuddles mining operations in 1990. The same is true, albeit to a lesser extent, of lead as mine production also peaked in 1991, when it totalled 579,000 tonnes. Production fell back slightly the next year and more sharply in 1993, as cutbacks in lead were to a lesser extent offset partially by increased production at other operations such as Aberfoyle's Hellyer and Pancontinental's Thalanga mines. Output of lead and zinc also rose last year at Pasminco's Elura mine and it has been mooted that production there could return to earlier levels of around 90,000 tpy of contained zinc and 55,000 tpy of contained lead. This year looks set to be an important one for the region, for this is when MIM's McArthur River project is slated for start-up. By 1996 it is expected have the capacity to produce 160,000 tpy of contained zinc and 45,000 tpy of contained lead. CRA's huge Century deposit originally looked set for a similar start-up date, but it is now not expected onstream before 1998. The mine has reserves of 118 million tonnes, average grading 10.2% zinc, 1.5% lead and 36 grammes/tonne of silver. Meanwhile, a decision on whether to develop the Cannington lead-zinc-silver deposit in Queensland is unlikely to be made until the first half of 1995. Reserves there are now estimated at 45.3 million tonnes, grading 11.1% lead, 4.4% zinc and 500 grammes/tonne of silver. Billiton Metals Page 57 Table 3.4 Major New Mines and Restarts (1994-1996) Location Mine Ownership _ Start-up Estimated capaci Remarks (thousand tpy steamed metal 94 95 96 Zn Pb Zn Pb Zn Pb New Projects Canada Grevet Cambior Fark 25 San Andreas Earl Resources 199 Novicourt/ Q4 1994 Aur Resources/ Teck Arcon Mid-1996 Eventually International 50-60,000 tpy Resources 2n, 5) 5,000 tpy Navan Eventually Resources 20,000 tpy Zn, 5,000 tpy Pb Comibol Q3 1995 Cia Brasiliera 1994 de Bauxite Penoles/Dowa 1994 Mining ec em Early 1996 Eventual le Minera capacity Iscay-Cruz 60/000 tpy Zn. Turkey i Cayeli Q4 1994 Australia McArthur MIM Q3 1995 River Tunisia Bougrine Metall May 1994 Mining Restarts Canada Heath Noranda 41994 Steele Myra Falls Westmin Sept Production Resources affected by 16 month strike. Faro Curragh Q3 1995 Closed since April 1993. Aljustrel _Pirites Q4 1994 Alentjanas Aznalcollar Andaluza July 1994 Expansion de Piritas planned to 30,000 tpy Zn, 50, 000 Pb by 1997. Billiton Metals Page 58 Australian production of lead in concentrate looks to have recorded a slight increase in 1994 from year-ago levels, and while zinc output has fallen in part because of problems at MIM the start-up of McArthur River should help to ensure that production starts to pick up again in 1995 and further still beyond that. African zinc mine production suffered in 1991 following the closure of Prieska Copper Mines' Copperton mine in South Africa. However, lead mine output was not affected by this. In any case zinc output has since picked up again as a result of the start-up of the Guemessa mine in Morocco in late 1992, which has also boosted lead mine production. Guemessa was expected to achieve its full capacity of 20,000 tpy of lead and 68,000 tpy of zinc in 1994. The region will also benefit from the start- up of the Bougrine operation in Tunisia, which came onstream in May 1994 and should reach its full capacity of 8,000 tpy of lead and 40,000 tpy of zinc in 1995. In the case of zinc, mine production has fallen quite markedly at Gecamines' 70,000 tpy Kipushi mine in Zaire. Meanwhile, Zambia Consolidated Copper Mines' Kabwe lead-zinc mine was forced to close in mid-1994. However, reportedly the mine may now reopen following Boliden Contech's decision to invest in the operation. The latter recently carried out a study which established that Kabwe still has around 3.5 million tonnes of ore, which could be mined profitably. Looking to the future, one potential development is the Perkoa mine project in Burkina Faso, although this has really been put on the backburner and is still subject to considerable doubt. RECENT TRENDS IN REFINED LEAD PRODUCTION The tightening concentrate market had a barely perceptible impact on Western world refined lead production in 1993. Mine output fell by 13.1% from 1992 levels, whilst refined production fell by less than 0.1% over the same period to 4.437 million tonnes. Meanwhile, we estimate that last year it recorded a 1.4% increase. According to our estimates the production cutbacks implemented in 1993 theoretically would have resulted in the loss of considerably more than 100,000 tonnes of primary output. The reality as we have already seen however, was quite different as operating rates were higher than 1992 levels at a number of operations. Indeed, Western world primary lead production actually rose by 36,000 tonnes in 1993, such that secondary output was solely responsible for the marginal decline in total output. North American refined lead output fell by just 0.6% to stand at 1.426 million tonnes in 1993, as a drop in Canadian production was pretty much offset by rising US output. In Canada, Cominco decided to close its Trail operations for one month (reverting a decision to close for a second month) which should have resulted in the loss of 8,000 tonnes of production. Meanwhile, Brunswick Mining and Smelting (Noranda) closed its 72,000 tpy Belledune smelter for a number of weeks towards the end of 1993 and this should also have led to 8,000 tonnes of output being lost. In reality, though, the country's primary production remained static at 1992 levels and all the losses came from secondary producers. Latest figures suggest that primary output in Canada remained pretty stable last year, while secondary output picked Billiton Metals Page 59 Table 3.5 Production of refined lead in the Western world 1982-93 (thousand tonnes) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 North America Canada 245 184 USA 1169 1291 Total 1414 1475 Western Europe Austria 21 21 Belgium 93 92 France 268 260 Germany 350 349 Italy 181 171 Netherlands 43 42 Spain 122 130 Sweden 71 76 UK 350 329 Yugoslavia 11994 Others 30-22 Total 1648 1586 Latin America Argentina 25 20 Brazil 86 75 Mexico 238 Peru 74 70 Venezuela 14 14 Others 6 7 Total 379 424 Asia India 37 41 Japan Malaysia 16 «16 S. Korea 87 75 Taiwan 58 27 Thailand . 19 16 Others 48 «55 Total 557 Australasia Australia » 224 New Zealand 6 5 229 67 35 South Africa 31 Others 17 Total Western Total 3918 3926 4059 4239 4065 4257 ee — Source : International Lead and Zinc Study Group. Billiton Metals Page 60 up substantially, although admittedly it accounts for a smaller proportion of the market. Nevertheless, total output achieved a considerable increase in 1994. In the US, however, both primary and secondary production increased in 1993. None of the country's primary producers announced plans to cut production but at the same time flooding halted production for three weeks in the summer at Doe Run's Herculaneum smelter. Around 12,000 tonnes of production was expected to be lost but output actually rose from 1992 levels, when the plant was first affected by strike action. Herculaneum had been operating at a reduced rate since the strike, but the company announced plans to raise production to around 172,000 tpy in 1993 and the plant is now close to operating at 200,000 tpy. US primary output actually rose quite sharply in 1994 and secondary production also increased. Western European producers bore the brunt of the decline in refined production in the West in 1993 as it fell by 2.9% to 1.498 million tonnes. However, the region's output had already recorded a sharp decline of 5.6% in 1992. This primarily was the result of the outbreak of hostilities in the former Yugoslavia, which has severely constrained output levels since. So too has the closure of Metaleurop's Cartagena operations in Spain for environmental reasons and the shutdown of a secondary plant in the Netherlands. , In 1993 though in several cases the actual amount of production lost following cutback decisions fell short of expectations. For example, Metaleurop's decision to close its Noyelles-Godault operations in France for three months and its Nordenham Refined lead production in the Western world (1980-1993) (thousand tonnes) JALAEEE PIP Western Europe Asia es] Australasia HB North America EM Latin America BB Africa Billiton Metals Page 61 plant in Germany for two months, reportedly was expected to result in the loss of around 50,000 tonnes of production. However, the actual production lost amounted to considerably less. The company subsequently decided to close these operations again in 1994, estimating that around 35-50,000 tonnes of output would be lost. Nevertheless, we are again doubtful whether the actual loss was as great as this. Elsewhere, the extended closure of Nuova Samim's Porto Vesme smelter (100,000 tpy) for maintenance work between July and October 1993 in theory should have resulted in around 24,000 tonnes of output being lost. Again, however, the actual loss from 1992 levels proved to be far less significant as the plant was also closed for six weeks in 1992 for maintenance purposes, resulting in the loss of around 10,000 tonnes of production that year. Meanwhile, technical problems led to the closure of the 100,000 tpy Stolberg QSL smelter in Germany between mid-April and mid-June, but production actually recorded a year-on-year increase in 1993 as the operating rate improved once production had been resumed. Despite the cutbacks implemented by producers in 1994 output held up pretty well. However, the full impact of Metallgesellschaft's decision to curb output at its Stolberg primary plant and Braubach secondary plant will only really be felt this year. Also, by the end of 1995 Metaleurop plans to lower the capacity of its Nordenham plant by 30,000 tpy to 90,000 tpy. These developments will have more of an impact on primary output. Refined lead production held pretty steady in most of Latin America in 1993 with the exception of Mexico. This country was responsible for rising output in the early 1990's and for falling production in 1993. The reason for this was the one month closure of IMMSA's 60,000 tpy Chihuahua smelter and Monterrey refinery for environmental reasons in the summer and the subsequent permanent closure of the latter in October and the former by the end of 1993. In that year the operations produced 38,000 tonnes of refined lead and whilst the loss was greater in 1994, Penoles the country's other major producer, planned to raise production. Lower Peruvian mine output also resulted in that country's refined output falling in 1994, but in the smaller producing countries of the region production remained pretty stable. Asian production fell sharply in 1990, primarily as a result of a halving of Taiwanese output, but began to rise again in 1992 and peaked at 640,000 tonnes in 1993. Furthermore, this occurred despite production cutbacks made by Japanese producers. Japanese output fell still further last year following the permanent closure of Mitsubishi's Naoshima smelter/refinery in April and Nippon's Saganoseki refinery. However, these plants had been operating at well below capacity levels, and also, Toho Zinc was expected to benefit from the closures by way of toll agreements with these companies. The latter was expected to raise its operating rate in 1994, thereby partially offsetting the cutbacks elsewhere. In the meantime, South Korean production surged ahead in 1993, recording a 38% increase from. 1992 levels to reach 128,000 tonnes. Furthermore, this was despite a six week closure for maintenance work of Korea Zinc's Onsan smelter as it still operated at a higher rate than the previous year. Billiton Metals Page 62 Table 3.6 Production of refined zinc in the Western world 1982-93 (thousand tonnes) 1982 1983. 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 North America Canada 683 692 USA Total Western Europe Austria Belgium Finland France Germany * Italy Netherlands Norway Portugal Spain United Kingdom Yugoslavia Total Latin America Argentina Brazil Australasia Australia Africa Algeria S. Africa Zaire Zambia Total Western World Total * Prior to 1991 excludes former East Germany Source : ILZSG Billiton Metals Page 63 331 1014 24 271 159 259 356 167 210 94 6 212 86 103 1947 28 180 464 56 754 106 4 20 4330 4645 4892 4996 4855 5058 5240 5215 5206 334 1026 25 271 161 247 367 210 203 93 6 216 74 95 1968 31 5405 5445 5450 Latest figures indicate that Asian production recorded a 2.4% decline in 1994. Some Japanese producers have announced plans to raise their production although we believe that the ongoing tightness of the concentrates market will inhibit such plans at least in the first half of this year. Looking further ahead Asian production was expected to receive a boost in the second half of this decade from the Pacific Zinc project in Japan and the Seamet project in Thailand. However, the former has now been abandoned and the latter is on hold. Recent additions to capacity have taken place in India and Iran. In India Hindustan Zinc brought onstream the Chanderiyah smelter/refinery in 1991 and in Iran the 40,000 tpy Zandjan smelter/refinery started up in 1992. Despite a number of mine production cutbacks in the region Australasian refined lead output actually rose in 1993, reaching 248,000 tonnes. The only really significant recent development was MIM's decision to close the newer and smaller of its Mt Isa plants in late 1993, because of a shortage of feed. This smelter came onstream in 1991 and production was to be gradually reduced at the older plant as this attained capacity levels. However, the company subsequently closed the smaller smelter indefinitely and is operating the older one at a capacity of 170,000 tpy, thus in part offsetting the shortfall. In fact this did not have any impact on Australian refined production as MIM ships the bullion to its subsidiary Britannia Refined Metals in the UK, which operates the 180,000 tpy Northfleet refinery. Output at the latter probably fell by around 10,000 tonnes last year. In the case of Africa, production there has remained pretty stable at around 150,000 tonnes in recent years, with no major developments envisaged for the foreseeable future. Morocco is the region's largest producer, producing fairly consistently around 70,000 tpy of refined lead since the late 1980's. Output at ZCCM's Kabwe smelter/refinery (10,000 tpy) in Zambia was affected by the closure of the company's mine in mid-1994, but in any case the actual loss compared with earlier years was negligible. RECENT TRENDS IN REFINED ZINC PRODUCTION Despite the fact, as with lead, that Western world zinc mine output fell sharply in 1993, this failed to have any impact on refined production which actually reached a new all-time peak of 5.450 million tonnes. As we noted earlier, several Western mine producers implemented production cutbacks, if somewhat belatedly, in 1993 in response to the zinc market's depressed conditions. Unfortunately, though smelter cutbacks were rather less forthcoming such that the impact of those that did occur was offset by increased output elsewhere. Nonetheless, a number of cutbacks implemented last year are likely to have resulted in output recording a decline of around 1.3%. North American production was only some 2.6% off its 1992 peak of 1.044 million tonnes in 1993 despite cutbacks in both Canada and the US. Admittedly though, the cutbacks made were not really that significant. Technical and metallurgical problems in the switchover to QSL technology hampered output at Cominco's Trail smelter in 1989 and 1990 such that a one month closure in 1993 was pretty Billiton Metals Page 64 insignificant by comparison, resulting in the loss of around 20,000 tonnes of production. The company originally had planned to close the plant again in August but subsequently reverted this decision. In part this cutback may have been partially offset by the 7,000 tpy expansion at Hudson Bay's Flin Flon smelter which was completed as part of a modernisation programme in July 1993. Last year production picked up again in the absence of any further cutbacks. Meanwhile, in the US production was not markedly lower in 1993 compared with the previous year. Zinc Corp of America decided to close its 60,000 tpy Bartlesville plant for around one year in September, but this was really too late to have much of an impact that year. However, the impact on production was more perceptible last year. According to latest reports Bartlesville will remain closed and although it will be kept in a state of readiness if it stays out of action this year then production is unlikely to change much from last year's levels. Meanwhile, ZCA has recently expanded capacity at its Monaca smelter by increasing its secondary feed. The closure of Vieille Montagne's 120,000 tpy Overpelt smelter in Belgium and Bleiberger Bergwerk's somewhat smaller plant in Austria as well as problems in the former Yugoslavia were more than offset by expansions elsewhere in 1992, such that the region's output peaked at 2.199 million tonnes that year. At one stage Pertusola's 100,000 tpy Crotone plant in Italy was to close in 1992 for two years to enable expansion and modernisation work to be carried out. However, the high prices which prevailed subsequently caused the company to revoke this decision and it announced its intention to keep the plant open whilst building an adjacent 160,000 tpy new smelter to replace the old one. Since then though we have heard nothing further about the planned new plant. Production in the region was boosted in 1992 by the expansion at Asturiana de Zinc's Aviles smelter in Spain and at Metallgesellschaft's Datteln plant in Germany, even though the latter has never operated at its designated capacity. In 1993 European zinc output recorded a 0.9% decline, in part because of still falling output in the former Yugoslavia, for obvious reasons, but also following a decision by Asturiana to cut production at Aviles by 10,000 tonnes in November and December because of a shortage of concentrates. Furthermore, the company continued to operate the plant at reduced levels in 1994 but decided to raise output by 50,000 tonnes in 1995. In addition to this MG announced in late May 1994 its decision to cut production at the 200,000 tpy Datteln smelter to 90,000 tpy. The cutback is not as significant as these figures would suggest as Datteln had never attained its full capacity, but nonetheless this was clearby a step in the right direction. Meanwhile, an explosion in early 1994 halted refining activities at Metaleurop's Noyelles-Godault smelter in France. Whilst refining was not to be resumed at the plant until Q1 1995 the company's smelter output has been refined by Union Miniere of Belgium and Harzer Zink of Germany since early August 1994. At the start of 1994 the market was faced with the prospect of a co-ordinated permanent closure of at least one and possibly even two smelters in Western Europe. Disappointment inevitably was rife when the talks collapsed early last year but the Billiton Metals Page 65 subsequent cutbacks made during the course of the year did help sentiment and we estimate that output in Western Europe fell by a further 2.5% in 1994. This year production may now only record a small decline despite a planned 28,000 tpy cutback by Norzink, following Asturiana de Zinc's decision to raise output. Also, Italy's Nuova Samim reportedly plans to raise combined capacity at its Nuova Samim ISF and electrolytic smelters from the current 155,000 tpy to around 190,000 tpy by mid-1995 by increasing secondary feed. Otherwise, we do not envisage any major additions to capacity in the region in the next few years. Vieille Montagne deferred plans to expand capacity from 200,000 tpy to 300,000 tpy at its Balen smelter in Belgium until 1995, but we envisage still further delays to the project. However, it is possible that by 1998 the 170,000 tpy Nuuk project in Greenland could be onstream. Latin America was the only region where output actually increased 1993, and quite significantly at that, offsetting the shortfalls elsewhere. The largest increases were recorded in Mexico and Peru and this primarily was because output in both these countries had suffered setbacks in 1992. A combination of technical and labour problems hampered production at IMMSA's 100,000 tpy San Luis Potosi smelter for a substantial part of 1992, whilst power supply problems affected production at Minero Peru's 101,000 tpy Cajamarquilla facility. Latin American production remained high last year despite some problems at Cajamarquilla again. There is potential for further increases to output levels in the region in coming years, although some quarters are sceptical that many of the projects will reach fruition. Refined zinc production in the Western world (1980-1993) (thousand tonnes) Litt wut Iti WesternEurope [Mj North America EE Australasia Asia Ed Latin America El Africa Billiton Metals Page 66 We would also tend to err on the side of caution, but believe that some expansions will be made. One expansion which could see the light of day is the 60,000 tpy addition to capacity at Cia Minera de Metais' Votorantim plant in Brazil. Expansion work was scheduled for completion by October 1994, but commissioning reportedly is to be deferred until October 1995. Meanwhile, capacity at the Itaguai smelter, also in Brazil, is in the process of being raised to 60,000 tpy. Asian production of refined zinc fell by around 1.7% in 1993 to 1.19 million tonnes as a decline in Japanese production offset increases in India and South Korea. Japanese producers decided to implement further production cutbacks in 1994 in the face of a tightening concentrate market and an unfavourable Yen/$ exchange rate. A number of Japanese producers subsequently announced plans to revoke earlier cutback decisions in the second half of the fiscal year (ending March 1995), in the face of higher prices although the continued tightness of the concentrates market may prevent any marked increase in 1995. Also any increase could well be offset by lost output at the Harima and Akita plants, damaged by the recent earthquakes and problems at MIM are likely to affect both Japanese and South Korean production. Furthermore, it is possible that Thailand's output will record a decline this year. Padaeng's Mae Sot mine closed ahead of schedule at the end of 1994 and while a new roaster to process imported concentrate rather than domestic concentrate was to be installed in February the continued tightness of the concentrates market may inhibit production. The region's capacity was expected to be boosted in the mid-1990's by the Pacific Zinc smelter project in Japan and the Seamet project in Thailand, although both ran into difficulties. Doubts were raised about the Rayong project in Thailand following Metallgesellschaft's withdrawal. However, Padaeng Industry, a partner in the project, having said that it would instead raise capacity by 20-30,000 tpy at its Tak smelter, reportedly is still studying the viability of such a plant. Meanwhile, the Pacific Zinc project (120,000 tpy), originally scheduled onstream in 1995/96 has been abandoned. Throughout the 1980's Australian refined zinc output tended to fluctuate around the 300,000 tonne mark. Improvements were seen in both 1991 and 1992 and although output fell back in 1993 it was still higher than in the 1980's at 317,000 tonnes. The shortfall in part can be attributed to the closure of Pasminco's Cockle Creek smelter for maintenance work. Also, while the plant was closed modification work was carried out which raised capacity from 80,000 tpy to 90,000 tpy and may have contributed to higher output in 1994. In the meantime earlier plans to undertake a 100,000 tpy expansion at Pasminco's Risdon smelter (220,000 tpy) appear to have been put on the back burner. In terms of refined zinc Africa is the smallest producing region in the Western . world, accounting for just 2.4% of total output in 1993. African output began to fall in the late 1980's/early 1990's and this can be wholly attributed to the sharp decline in Zairean and, to a lesser extent, Zambian production. Gecamines' Kolwezi plant in Zaire has not operated at anywhere near its 72,000 tpy capacity since the late 1980's. Meanwhile, in Zambia ZCCM's two Kabwe facilities were expected to close in 1992 with the mine as part of a rationalisation programme. These plans were abandoned but, output has suffered and even more so since the closure of the company's mine in mid-1994. [Billiton Metals Page 67 SECONDARY PRODUCTION OF LEAD One of the most significant features of the lead market in the past thirty years or so has been the emergence of the secondary industry. The production of secondary refined lead actually exceeded 50% of total lead output for the first time in 1989 when it peaked at 2.348 million tonnes. Its share of the market fell back slightly in the early 1990's but it picked up again last year. Between 1960 and 1993 the production of primary refined lead increased by just 26% at an annual average rate of 0.7%. Over the same period secondary output rose by around 200% at an average annual rate of 3.3%. The US is by far the largest single producer of secondary refined lead, accounting for almost 41% of total secondary output in 1993. Output there fell sharply in the early 1980's as a number of operations were forced to close against a backdrop of depressed demand and prices. Nevertheless, the industry picked up again and as optimism grew several companies announced plans to invest in new operations in 1991, after four years in which lead prices had risen consecutively. However, many of these projects failed to see the light of day as the market succumbed to a renewed downturn in the early 1990's, thus preventing the anticipated continued increase in secondary output. By 1993 lead prices had plummeted to average just 18.5 cents/|b, which left little room for profit, particularly given the high cost of complying with tightening pollution controls. However, some producers once again began to entertain the idea of undertaking new projects once lead prices began to improve last year. RSR for example, which is one of the larger producers, announced plans to bring onstream a new 110,000 tpy plant in Aiken, South Carolina by early 1995, although this has since been put on hold. Meanwhile, though Pacific Dunlop GNB plans to start up a new 90,000 tpy plant to replace its existing smaller Columbus operation. Western Europe's secondary industry accounts for around 50% of the region's total refined output, and the indications are that this proportion will rise still further. A period of rationalisation also took place there in the early 1980's but output picked up again thereafter, peaking at 855,000 tonnes in 1990. France, Germany and the UK are the largest secondary producers, between them accounting for over 60% of the region's total. German output received a boost in 1991, following the inclusion of the Freiberg plant from the former East Germany, although it has fallen since then. This year could prove to be an interesting one. For example, Metallgesellschaft decided to reduce production at its 40,000 tpy Braubach refinery to 20,000 tpy in the financial year beginning October 1 1994. Meanwhile, Metaleurop plans to reduce capacity at its 120,000 tpy Nordenham plant to 90,000 tpy, whilst simultaneously raising secondary output. The net result of this in effect could have little impact on the country's secondary output as a whole. In response to the improving price environment, however, we expect secondary production in Western Europe to rise quite sharply this year. Asia is the next largest producing region and output levels there have changed little in recent years. Japanese production is expected to receive a boost from the switch from primary to secondary technology at Mitsubishi's 22,000 tpy Hosokura refinery this year and Mitsui's Kamioka plant this year. Meanwhile, 1993 saw the start-up of Billiton Metals Page 68 the 28,000 tpy Suraboya plant in Indonesia, and by the end of 1994 Oriental Technique's 18,000 tpy Port Klang operation in Malaysia was scheduled onstream. This year the 18,000 tpy Riyadh facility in Saudi Arabia is set to begin production. Otherwise, we are not aware as yet of any planned significant additions to capacity in the next few years, although the improvement in prices this year may revive previously deferred projects, or indeed lead to new projects or even the further conversion of some primary plants to secondary production. For some smaller producers the costs of adhering to increasing environmental and pollution controls have proved too high. Nevertheless, new technologies are in a better position to use secondary feed and secondary production does have certain advantages over primary. For one it is widely considered to be more environmentally-friendly, by keeping the metal out of the environment through recycling. Lead is readily recyclable, because an increasing proportion of demand is accounted for by the battery sector, for which the infrastructure for recycling is already in place. Hence, as battery demand continues to grow as it will inevitably The production of primary and secondary refined lead Litt Litt Litt | pitt Litt Lijit Litt Billiton Metals Page 69 will, so it should follow that recovery from secondary lead also increases. By the end of the 1990's we believe that secondary production could account for around 55% of the total lead market. Recovery of secondary lead by region 1970-1993 HB North America #2 Western Europe SECONDARY PRODUCTION OF ZINC Unlike lead, zinc is one of the least recycled of the major base metals, and not surprisingly therefore, secondary production is not of any great importance to this market. There are actually three types of secondary or scrap metal - circulating scrap, which is produced and then reprocessed at the smelter, process (new) scrap, which is left over from the manufacture of zinc products and, finally, capital (old) scrap, which is recovered from zinc-containing products. It is true that some producers have opted to convert some or all of a plant to secondary production, although admittedly some with rather more success than others. Zinc Corp of America, for example, raised capacity at its Monaca smelter in the US from 120,000 tpy to 150,000 tpy in 1993 by way of using secondary feed. In Austria, Bleiberger Bergwerks announced plans to switch to secondary production at its Arnoldstein plant, only to close it down instead. Korea Zinc considered the possibility of expanding its Onsan plant through secondary feed, although as yet this has failed to materialise. Nuova Samim also reportedly plans to raise capacity at its Porto Vesme smelters by a combined 35,000 tpy in 1995 by raising secondary feed. In summary, secondary's proportion of total zinc production looks set to increase in coming years, although in our view it will still not account for a significant part of this market for the foreseeable future. Billiton Metals Page 70 CONCENTRATE BALANCES AND TREATMENT CHARGES A combination of falling metal prices and rising treatment charges during the period 1990-1992 persuaded a number of miners to close down their operations. Between the second quarter of 1990 and the first quarter of 1993 zinc spot treatment charges rose from around $165/tonne to over $210, while the price of metal plummeted to just over $1000/tonne from around $1700. If anything lead fared even worse, as its price fell from about $850/tonne in early 1990 to under $400/tonne three years later, while treatment charges escalated from $125 to $185. Little wonder, then, that mines started to close. Those that did so are identified earlier in this section of the report, and noted in tabular form on page 56. To some extent, of course, the smelters were cushioned from the impact of lower metal prices by the higher treatment charges (resulting from the considerable concentrate overhang which then existed), they were able to command, and thus, as we have noted, smelter cutbacks were few and far between. As Figures 3.8 and 3.9 (pages 73 and 74) graphically illustrate these developments resulted in a considerable drawdown in concentrate stocks. We estimate that during the period 1992-1994, lead concentrate stocks fell by some 646,000 tonnes of contained metal. Although the zinc concentrate market remained in surplus in 1992, over the next two years concentrate stocks fell by 415,000 tonnes. During the second half of 1993 treatment charges plummeted. Particularly those for lead, and by the second quarter of 1994 these had fallen to around $100/tonne, compared with $165 a year earlier. Not only had lead concentrate production fallen sharply, but during 1992 the West became a net exporter of concentrates thereby limiting further the material available to Western smeliers. In our view the lead concentrate market will remain tight throughout most of 1995. True, plans are in place to reopen the Faro lead-zinc mine and this will raise lead-in- concentrate output by 100,000 tonnes in a full year, but it is unlikely to contribute to the market balance until the final quarter. Similarly, McArthur River the only major new mining venture of any note, will only really have an impact in 1996. In this environment it is hardly surprising that treatment charges for lead concentrates have remained low. Until very recently the consensus was that the zinc concentrate market, which was in any case nowhere near as tight as that for lead, would record a small but not insignificant surplus this year. Not only had the favourable treatment charges encouraged restarts at a number of operations, but several new mines will also make a significant contribution this year and next. However, the announcement by MIM in early February that it would only be able to meet 65% of its delivery contracts for zinc concentrates this year suggests that things will be somewhat tighter than earlier expected during the first half of the year at least. Thus the miners look well placed to squeeze a little bit more out of the market during the current "mating season". Nevertheless, they would be unwise perhaps to overplay their hand given the approach of the Arctic shipping season and, further ahead, the restart of Faro. Billiton Metals Page 71 Lead and Zinc Prices and Spot Treatment Charges 1990-1994 ($/tonne) 8 R So jit t y o o PUTTTy TTT rrr] Jit t e Oo o 4 pit TrTry tit ay 8 Lijit List titty g 3 rrtiiid Lead Price Left Hand Scale ~ o I o TTTT] TITTY ITTY] 8 a aio mein le st ooocoooood 1990 1991 1992 1993 Sources: CRU, Billiton Metals estimates Billiton Metals Page 72 Concentrate balance for lead (thousand tonnes) 1991 1992 1993 1994(e) 1995(f) Concentrate production 2,386 2,296 1,998 2,015 2,100 Net imports 18 (47) (22) (25) - (exports) Smelter/refinery losses 95 %6 Balance available 2,280 2,308 Concentrates required 2,082 2,181 Implied concentrate surplus 198 127 (deficit) Source: ILZSG, Billiton Metals’ estimates Figure 3.8 rirttitit Joi tt Ji jt Jj tt = Concentrate availability . « Concentrate requirements J Balance Left hand scale Left hand scale Right hand scale Billiton Metals Page 73 Concentrate balance for zinc (thousand tonnes) 1991 1992 1993 1994(e) Concentrate production 5586 5,678 5,227 5,160 Net imports (11) (118) (154) (40) (exports) Oxide use Smelter losses Balance available Concentrates required Implied concentrate surplus 190 232 (deficit) Source: ILZSG, Billiton Metals' estimates Figure 3.9 riir tiie e°Seeeg Jit ot 8 pitt a TVIT]TTITT TITPTITTTT TUYTTTT T TPTTITY TTT orm biti — Concentrate availability « Concentrate requirements Balance Left hand scale Left hand scale Right hand scale Billiton Metals Page 74 OUTLOOK The fact that more often than not lead and zinc are mined together, at first glance would seem to suggest that the outlook for the refined production of these metals would be pretty similar. However, the fact that secondary production accounts for around 50% of total lead output enables quite different patterns to emerge. Table 3.7 Location Trail Bartlesville Noyelles- Godault Refined zinc cutbacks/closures (1993/1994) Ownership Estimated capacity lost (tpy) 93 Cominco 20,000 ZCA 20,000 Metaleurop Metaliges- ellschaft 30,000 Norzink Asturiana de Zinc 20,000 94 60,000 55,000 70,000 Remarks Closed for one month in 1993. Closed since September 1993. No plans to reopen despite higher prices. Explosion in late January 1994 affected tefined production, but amount lost seems to be negligible. Closed for modernisation work in 1993 and in July 1994 capacity cut by 110,000 tpy. However, plant never really reached full capacity. Long term plans for Datteln uncertain. Capacity to be cut by 28,000 tpy from early 1995. Cutback prompted by shortage of concentrate feed. Company decided to raise output by 50,000 tpy in 1995. In 1994, for instance, we estimate that the tightness of the zinc concentrates market finally resulted in a decline in refined output in the order of just over 1%. Over the same period, though, we estimate that refined lead production recorded an increase of a similar magnitude. This was made possible because an estimated increase of more than 6% in secondary production more than offset a drop in primary refined output caused by continued concentrate tightness. Billiton Metals , Page 75 This pattern looked set to be more or less repeated in 1995. As Table 3.4 in the Recent Trends section shows a number of mines, closed in the face of depressed prices, were restarted towards the end of last year. Furthermore, the Faro mine is scheduled onstream under new ownership in the second half of this year. Also, some new mine projects began commercial production in 1994 and the large McArthur mine in Australia is slated for start-up in the third quarter of 1995. However, the table also clearly shows that overall the implied addition to capacity is of far more significance to the zinc concentrates market. Table 3.8 Primary lead cutbacks/closures (1993/1994) Location Plant Ownership _ Estimated capacity lost (tpy) 93 94 Canada i Cominco 8,000 - Closed for one month in April 1993. Noranda 8,000 Closed late 1993 because of lack of feed and in 1994 for maintenance purposes. Porto Vesme Nuova 25,000 Closed for 12 weeks Samim in summer 1993. Noyelles- Metaleurop 45,000 Capacity at Nordenham Godault to be cut by 30,000 tpy Nordenham end 1995. Stolberg Metallges- 9,000 Maintenance work and ellscha! technical problems in 1993. In September 1994 working week cut from seven days to five. Capacity also cut at Braubach secondary plant. Ronnskar Closed for six weeks in 1994. Operating rate cut in January 1994. Northfleet Closure of MIM's refinery Isasmelt plant in Australia affected output in 1994. Refinery closed for one month in summer 1993, then closed permanently in October 1993. Smelter closed end-1993. Permanent closure of Naoshima and Saganoseki refineries in 1994 partially offset because material toll-smelted elsewhere. Billiton Metals Page 76 At the same time, however, we are assuming that it will take some time for these mines to build up their capacity, and that the zinc concentrates market will remain tight into the third quarter of 1995. For example, MIM recently announced it will only meet about 65% of its delivery contracts this year. Thus, we believe that the concentrates market will only record a small surplus for the year as a whole. This ongoing shortage of concentrates in turn should continue to hamper attempts by most zinc producers to raise their output at least until the latter part of the year. We have assumed that ZCA's Bartlesville plant in the US will remain closed at least for most of 1995 and also that the cutback will remain in place at Metallgesellschaft's Datteln plant in Germany. Production is also likely to be lost at the Tak plant in Thailand following the closure of the Mae Sot mine. The company may find it difficult to secure feed until mine output elsewhere picks up markedly. Also, earthquake damage to the Hachinohe and Harima plants and problems at MIM could hamper attempts by other Japanese producers to boost their output. Indeed, we had already considered that their attempts to do so would be largely thwarted by concentrate tightness. Meanwhile, though Asturiana de Zinc recently announced its decision to raise its output by some 50,000 tonnes to around 300,000 tonnes this year. Nonetheless, we still believe that refined production will be slightly lower this year. Meanwhile, the concentrate tightness should continue to ease in 1996, with McArthur River fully onstream and Faro also back in the picture. This in turn should allow more smelters to raise their production. If it has not already, The production of refined zinc by region in the Western world (thousand tonnes) 1990 §=1991 1992 1993 North America 950 1,037 1,072 1,044 Western Europe 2,144 2,194 2,199 2,179 2,125 2,110 2,180 Latin America 523 551 490 586 590 608 625 Asia 1,121 1,141 1,211 1,190 1,162 1,140 1,200 Australasia 303 326 332 317 328 332 335 Africa . 165 156 141 133 125 125 130 Total Western . world 5,206 5,405 5,445 5,450 5,380 5,375 5,550 Billiton Metals Page 77 Bartlesville may be tempted to reopen and it is possible that the earlier cutback at Datteln could be revoked, although the plant's future is still uncertain. Also the cutback at Norzink is unlikely to be repeated in 1996. Meanwhile, we expect refined lead production to record a further increase this year. As we noted earlier the re-start of existing mines and start-up of new ones will not serve to alleviate the tightness in the lead concentrates market to any real extent in 1995. Thus it follows that primary production will continue to be constrained and probably record a further decline this year. Nevertheless, there is considerable scope for secondary output to once again more than compensate for this shortfall. US secondary output should continue to rise this year with the start-up of the Columbus plant, although much of the growth impetus in 1995 is likely to take place in the European region, where production has fallen quite sharply in recent years. Looking ahead to 1996 we have assumed that there will be some room for primary production to increase as the concentrate tightness gradually starts to ease. By then Faro should be up and running again, McArthur River will be fully onstream and expansion of the Aznalcollar mine will be in progress. Clearly the rate of growth in secondary production cannot be sustained but despite slowing down total refined output for the year as a whole should still record a further increase in 1996. Table 3.10 The production of refined lead by region in the Western world (thousand tonnes) 1991 1992 1993 1994(e) 1995(f) 1996(f) North America 1407 1435 1,426 1,550 1,575 1,590 Western Europe 1,632 1,540 1,498 1510 1,570 1,600 Latin America 421 485 468 430 437 440 Asia 560 591 640 615 630 640 Australasia 244 237 245 248 250 Africa 150 150 Total Western world Billiton Metals Page 78 IV TRADE TRADE IN ZINC Concentrates In 1992, the latest year for which a complete set of figures is available, the trade in zinc concentrates amounted to almost 2.9 million tonnes. However, the mine cutbacks implemented in 1993 inevitably resulted in the trade in concentrate falling back quite sharply. The table below shows that exports by two major exporters - Australia and Canada - fell by 7.4% and 32.6% respectively in 1993. Furthermore, the trade in zinc concentrates is likely to have recorded a further decline last year as the concentrate market continued to tighten. Primarily the main reason that the trade in concentrates is so huge can be attributed to the fact that mine and smelter production is concentrated in different geographical locations. Japan is one such example. Whilst the country's mining industry has been contracting since the mid to late 1980's, Japan has remained the largest single producer of refined zinc in the Western world and thus the largest importer of concentrates, taking delivery of 556,000 tonnes in 1993. More than half © of the country's concentrate requirements are satisfied by Australia, although imports from the US have increased since the late 1980's. - From a small net importer the US has emerged as a large net exporter of zinc concentrates since the start-up of the huge Red Dog mine in Alaska. In the past three years exports from the US have exceeded 300,000 tonnes, totalling 311,000 tonnes in 1993. Major importers and exporters of zinc concentrates (thousand tonnes of contained zinc) 1985 1986 1987 1988 1989 1990 1991 Imports Japan from: Australia Canada Peru USA Total (incl. others) Exports Australia to: Japan 244 179 242 South Korea 32 88 115 Total (incl. others) 433 411 478 Canada to: Western Europe * 323 306 428 418 Japan and Korea 37 7 141 138 Total (incl. others) 410 89433 613 609 Source: ILZSG * From 1991 German figures include former East Germany Billiton Metals Page 79 Australia emerged as a significant exporter in the mid-1980's, when it supplanted Peru as the second largest in the Western world. Since the early 1990's the country has become established as the largest exporter, replacing Canada. Indeed, exports from the latter fell quite sharply last year as a number of producers cut their mine output. In 1993 more than 90% of exports from both Canada and Australia were shipped to custom smelters in Japan and Europe. Meanwhile, South Korea has been a sizeable net importer since the late 1980's and has become the second most important destination for Australian material behind Japan. Peru has maintained its position as the third largest supplier to the custom smelters, with Western Europe and Japan the principal destinations. Indeed it would appear that its exports exceeded those of Canada in both 1993 and 1994. Between them Australia, Canada, Peru and the US accounted for around 75% of total Western world concentrate exports in 1992, and Japan and Western Europe accounted for over 80% of imports. Refined Zinc Canada and Australia also feature as the largest exporters of refined zinc, accounting for around one third of the 2.1 million tonne turnover in this market in 1992. Most of Canada's shipments (usually more than 80%) are destined for the US, the latter being the largest single importer. Canada accounted for almost 60% of total US imports in 1993. Mexico is the second largest supplier to the US market. The majority of Australian shipments meanwhile are destined for Asia and, more particularly, the developing economies of South East Asia. Western Europe is a fairly small net exporter of zinc, with Spain, Norway, Finland the major exporters, while the UK and Germany are the most significant importers. Belgium meanwhile has become a pretty insignificant net exporter, since 1992, following the closure of the Overpelt plant. It remains the case that the pattern of trade in refined metal still reflects changes in the economic environment. For example, Japanese and German imports continued to increase in the late 1980's and into 1991 as these economies posted strong growth but fell off quite sharply in the following two years. By contrast imports by the US and UK fell in the late 1980's and through to 1991 before picking up again as these economies emerged from recession. Meanwhile, imports by the South East Asian economies have increased as a result of rising domestic demand. In 1993 imports by Singapore virtually doubled to 135,00 tonnes and Taiwanese imports rose by around 33% to 171,000 tonnes. Billiton Metals Page 80 Table 4.2 Major importers and exporters of refined zinc (thousand tonnes) 1985 1986 1987 1988 1989 1990 1991 1992 1993 a Exports Canada to: USA 371 Total (incl. others) 556 Australia to: Asia 125 USA 31 Total (incl. others) 215 Major European net exporters Belgium 110 Finland 137 Netherlands 146 Norway 79 Spain 126 Major European net importers Germany * 58 UK 123 Imports USA 611 665 706 Japan 65 93 105 SE Asia 161 = 242 302 Source: ILZSG * From 1991 includes former East Germany EAST-WEST TRADE Zinc Concentrates The former Eastern bloc countries have long been established as net importers of zinc concentrates from the West. This trend looked set to be reversed in the late 1980's/early 1990's, and net imports fell to a meagre 11,000 tonnes in 1991 as a result of lower offtake by the CIS and China's emergence as an exporter. However, exports to the region and more specifically to the CIS picked up again in 1992, primarily because it was cheaper for the material to be toll-smelted there and shipped back to the West as refined metal. In 1994 though this pattern appeared to change again as a tight concentrates market and low treatment charges available elsewhere rendered it unprofitable for Western producers to export their concentrate there. Meanwhile, of course, against this backdrop Chinese exports to the West were encouraged, although again this may well change. The country's smelter output is Billiton Metals : Page 81 growing at a faster pace than mine production, such that China may well become a net importer of concentrates in the longer term. The mine restarts and new capacity onstream this year may ease the situation to some extent and exports from the West may pick up slightly from last year's low levels. East-West trade in zinc concentrates (thousand tonnes of contained zinc) 1985 1986 1987 1988 1989 1990 1991 1992 1993 Exports to West from: Imports from West to: cis 90 Bulgaria 25 Total (incl. others) 155 Net imports from West 137 Source: ILZSG Refined Zinc Since the beginning of the 1990's the Eastern bloc has changed from being a net importer of zinc metal from the West to a substantial net exporter. In the previous decade these countries, particularly China, were importers of considerable volumes of material from the West. In 1985 Chinese imports peaked at 235,000 tonnes but tailed off in subsequent years. Indeed Table 4.4 shows that exports have risen sharply in recent years. While these figures are subject to revision nevertheless they are still a fairly good representation of the sharp increase that has taken place. By 1993 ILZSG statistics indicate that net exports to the West totalled a massive 460,000 tonnes. The rise in CIS shipments was the result of the toll-smelting of Western concentrates and falling domestic demand. Exports from there were somewhat lower in 1994 as a result of the tightness of the concentrates market. Furthermore, the signs are that demand has started to pick up there as well as in other parts of Eastern Europe such that exports to the West may record further declines in coming years. Nevertheless, we do not envisage any rapid turnaround. Chinese shipments rose sharply in the first half of 1994 from year-ago levels, but fell off in the third quarter. However, it would appear that they began to pick up again towards the end of last year. We estimate that net Eastern bloc imports to the West actually rose from 1993 levels to peak at 500,000 tonnes last year. Billiton Metals . Page 82 Table 4.4 East-West trade in refined zinc (thousand tonnes) 1985 1986 1987 1988 1989 1990 1991 1992 1993 Exports to West from: China North Korea 35 42 55 69 45 50 90 80 95 cis 20 16 18 28 18 19 5 80 149 Total (incl. others) Imports from West to: China 235 70 58 61 6 4 cis 30 25 45 54 47 28 5 3 1 Total (incl. others) 335 168 164 181 135 54 36 17 14 Net imports from (exports to) West 249 45 (13) 43 42 (62) (118) (306) (460) Source: ILZSG However, we believe that Chinese exports to the West have now surpassed their peak and forecast that this, combined with improving demand in Eastern Europe, should ensure that total net exports to the West will start to decline in the next few years. However, we believe that the process will be a gradual one, and that exports will not be markedly lower in 1995 or 1996. : TRADE IN LEAD Concentrates Canada is traditionally the largest exporter of lead concentrates in the Western world, with Japan their principal destination. However, exports fell sharply in 1993 and further still, it would appear, in 1994. This shortfall has resulted from mine cutbacks and closures implemented in 1993. The country's Faro mine is a particularly important supplier to the concentrates market and exports thus are only likely to return to anywhere near earlier levels once this operation is up and running again. Indeed, that is likely to be some time off yet given that the mine is not scheduled to reopen before the second half of 1995. Peru is the second largest exporter of lead concentrates as it is a sizeable mine producer but has only one major smelter-refinery at La Oroya. Australia is now not far behind Peru as the Western world's third largest exporter and the US is also worth noting as exports from there have picked up considerably since the start-up of Cominco's Red Dog mine in Alaska. Billiton Metals Page 83 Meanwhile the major importers of lead concentrates in the West are Japan followed by a number of European countries which operate on a toll basis. Major importers and exporters of lead concentrates (thousand tonnes of contained lead) 1985 1986 1987 1988 1989 1990 1991 1992 1993 Imports Japan from: Australia Canada Peru Total (incl. others} France Germany * Exports Australia to: Japan 33 24 20 35 24 Total (incl. others) 85 92 53 77 57 Canada to: Japan 14 54 64 54 57 Germany * 16 8 20 17 14 Italy 5 1 24 30 25 Total (incl. others) 63 113 208 165 155 Peru 133 121 152 108 124 Source: ILZSG * From 1991 German figures include former East Germany Refined Lead Australia and Canada are by far the most significant Western exporters of refined lead accounting for just under one-third of all Western exports in 1992. In the case of the former the countries of South East Asia (particularly Taiwan) are the major destination, while the USA is by far the most significant importer of Canadian material, taking more than half of its import requirements from this source. As we noted earlier the pattern of trade in refined metal is primarily determined by economic developments. Hence, it is no great surprise that US imports, which fell to 91,000 tonnes in 1990 more than doubled in 1992/93, reflecting the strong growth of that country's economy. At the same time Table 4.6 shows how Japanese imports declined over the same period as a result of the economic problems experienced there. Both Taiwan and South Korea have emerged as significant importers of metal since the late 1980's/early 1990's and given the anticipated continued strong growth in these economies, they are likely to remain so for the foreseeable future. Mexico emerged as a major exporter during the 1980's although the permanent closure of IMMSA's Monterrey refinery in late 1993 undoubtedly meant that exports fell quite sharply in 1994 and will remain lower in subsequent years. Billiton Metals Page 84 Table 4.6 Major importers and exporters of refined lead (thousand tonnes) 1985 1986 1987 1988 1989 1990 1991 1992 1993 Exports Australia to: South East Asia 40 38 Total (incl. others) 154 111 Canadato: . USA 74 83 Total (incl. others) m4 «612 Major European net exporters Belgium 41 14 Sweden 48 50 UK 18 20 Major European net importers Austria 37 38 29 31 32 Germany * (15) (3) (3) 4 39 Italy 98 124 84 80 79 Spain 2 7 11 7 10 Total (incl. others) 63 8113 208-165) 155 Imports USA 131 140 186 149 116 Japan 41 28 21 55 58 South Korea 42 35 36 55 69 Taiwan 12 16 21 19 23 Source: ILZSG * From 1991 German figures include former East Germany EAST-WEST TRADE Lead Concentrates The former Eastern bloc countries are traditionally net importers of lead concentrates although they were intermittent net exporters in 1988, 1990 and 1991. This occurred for two reasons - China's entry into the concentrates market which coincided with a sudden decline in CIS imports. However, the former Eastern bloc became net importers again in 1992 as it had become cheaper to have the concentrates exported for toll-smelting and then sent back to the West in the form of refined metal. However, the ongoing tightness of the concentrates market appears to have reversed the trend again in 1994. On the other hand, as with zinc, China looks set to become a net importer of concentrates in coming years if plans to raise refined output are to be satisfied. This could well tip the balance such that the former Eastern bloc may become more firmly established as a net importer of Western concentrates in the longer term. In 1995 though, continued concentrate tightness is likely to inhibit exports to the East. Billiton Metals Page 85 East-West trade in lead concentrates (thousand tonnes of contained lead) 1985 1986 1987 1988 1989 1990 Exports to West from: China 46 19 11 Poland - 3 10 Total 49 26 24 Imports from West to: cis 50 25 18 Total 68 37 31 Net imports from 64 12 7 (exports to) West Source: ILZSG Refined Lead Throughout the 1980's the West maintained its position as a substantial net exporter of refined lead to the former Eastern bloc countries. However, a swift reversal took place in 1990 and by 1992 net imports to the West had risen to 190,000 tonnes. The sharp fall in demand from the CIS and rising exports from that country to Europe were in part responsible for this turnaround. However, another significant factor has been China's emergence as a sizeable net exporter. We believe that exports to the West have now passed their peak. Toll smelting in the CIS has quietened down as a result of the tightness of the Western concentrates market and there are also signs that demand in the region finally has started to pick up. 7 would also appear that Chinese exports have slowed down from earlier high levels. Although it is likely to prove a slow process we believe that net exports to the West having risen to 160,000 tonnes last year will start to record small declines in coming years. However, we do not believe that the East will revert to being a net importer for the foreseeable future. East-West trade in refined lead (thousand tonnes) 1986 1987 1988 1989 1990 Exports to West from: China - 32 cis 10 53 Total 13 103 Imports from West to: cis 65 Total 108 Net imports from 95 (exports to) West Source: ILZSG Billiton Metals Page 86 'V STOCKS AND PRICES RECENT DEVELOPMENTS Neither lead nor zinc escaped the effects of recession in the major economies during the early 1990's, particularly as this occurred against a backdrop of rising imports from the former Eastern bloc countries. Inventories subsequently rose to horrendously high levels, especially in the case of zinc, thus ensuring that prices remained depressed for a lengthy period. These supply/demand imbalances are graphically represented in the increase in the highly visible LME stocks (see figures below). LME stocks and prices 1991-1994 (tonnes, cents/Ib) Lead Dib} ta TUTTPTIT cents/Ib im POTERUEOR! | = TOTP TITTY ey a) 2 s§ o 1993 1994 Zinc Bss 8 8 — ~~ — ee ) JUEN GULL A TUIT TTT TTT TT eT TIT] TTTT mutt SES5 8828 2228 2 °o | = 2 o 1992 1993 1994 — Cash [ Stocks [Billiton Metals Page 87 | LEAD Lead prices had a good year in 1990, recording their fourth consecutive annual increase, but after that the market spent a prolonged period in the doldrums. Indeed, it was not until the end of 1993 that light began to emerge at the end of the tunnel. The outlook had already turned a bit sour in the latter part of 1990 but it was the following year that sluggish demand and the continued accumulation of LME stocks really began to take its toll on prices. LME stocks more than doubled, totalling 126,375 tonnes by the end of that year. Furthermore, having averaged 36.7 cents /lb in 1990 the cash lead price plummeted to an average of 25 cents/Ib in 1991. This generally uninspiring picture persisted for the most part of 1992, although lead did enjoy a spike upwards in the third quarter. Sentiment at this point was being helped by the strike at Doe Run's sizeable Herculaneum smelter and the possibility of a strike at Cominco's Trail operations. However, it subsequently became clear that salaried workers were operating Herculaneum and a strike failed to materialise at Trail. Hence, the market fell prey once again to its otherwise poor fundamentals 1991 Total reported stocks of refined lead . (thousand tonnes) o8BEBRERESESRRREE Loto LUE LLL oltre SUNT TIITT I Source: ILZSG Billiton Metals Page 88 of lacklustre demand and rising exports from both China and the CIS, and fell back quite sharply from its late September peak. The cash price again averaged 25 cents/Ib in 1992 and in the meantime reported stocks rose at producers, consumers and merchants and the LME (the latter recording the sharpest increase to stand at 212,550 tonnes). By the end of 1992 total reported stocks equated to around seven weeks' worth of consumption. However, that was not the end of this market's sorry tale, as lead remained in the doldrums for much of 1993. Mine production cutbacks failed to bolster sentiment early on as demand continued to disappoint and LME stocks continued to build as the influx of Eastern bloc material persisted. A slight improvement in lead's fundamentals failed to translate into higher prices and indeed the cash price slumped to a low of $355/tonne (16.1 cents /Ib) in early October against a backdrop of weakness in the rest of the base metals complex. However, the market swiftly rebounded from these lows. Total reported stocks peaked in the second quarter of 1993, when they equated to around 9 weeks' consumption. Producer and consumer stocks began to fall - thereafter, but unfortunately the more visible LME stocks continued to accumulate in the third and fourth quarters. This build-up slowed perceptibly in the last couple of months of the year and the long-awaited drawdown was expected to begin in early 1994. However, it failed to materialise and LME stocks continued to rise during this period. Thus having traded to a high of $532 in late January the lead market subsequently suffered a severe downward correction in prices. As the second quarter of 1994 progressed lead prices began to pick-up again aided by the perception that the fundamentals were improving. Producer stocks began to fall again during this period. The market initially peaked at $616/tonne (27.9 cents/Ib) basis three months in the latter part of August but stalled as the persistent uptrend in LME stocks tended to weigh on sentiment. The principal reason for this was the influx of toll-smelted material from the CIS into the Helsingborg warehouse. However, the perception was that this would prove to be a temporary phenomenon given the tightness of the concentrates market and the very strong demand from the battery industries in the CIS and some Eastern European countries. The lead market subsequently exceeded its earlier peak in early September, aided by a copper-led rally and actually reached a high of $703/tonne (31.9 cents/Ib) basis three months in mid-November. Although these gains were subsequently pared it was encouraging to note nonetheless that LME stocks had finally started to be drawn down after months of anticipation. Now that the downtrend in stocks appears to have been firmly established we are optimistic that this market is poised to post further gains in 1995. A prominent feature of the market during 1994 was the increasing tightness of the US market as the year wore on. As Table 5.1 (on page 92) indicates the Asarco premium, having lapsed back 5 cents/Ib in February, began to pick up towards the end of the first quarter and increased steadily to average 7.8 cents/Ib during the third quarter. In October it was raised to 8 cents/Ib and having eased to 7 cents/Ib in November was raised to 8 cents/Ib again the next month. Billiton Metals Page 89 ZINC When last we wrote a major report on the zinc market in early 1992 we noted that despite the metal's deteriorating fundamentals options-related activity could distort the picture. This indeed proved to be the case for much of that year. A combination of options-related and technical-based buying initially pushed the market into a backwardation in February. The market subsequently moved back into contango, but renewed tightness emerged in April and June. Indeed, at one stage in the latter month the cash price reached a high of $1460 (66.2 cents/Ib) as a cash to three months spread backwardation of $200 developed. Again the backwardation eased, but then the tightness moved forward to October. While all this was going on, however, zinc's fundamentals were worsening. The backwardations which developed attracted metal onto the LME such that stocks were steadily building while prices were rising. Somewhat inevitably the bubble had to burst at some point, and this occurred in the latter part of the year as the technical tightness disappeared. By the end of 1992 the cash zinc price had fallen to little more than $1050/tonne (47.6 cents/Ib). Total reported stocks of refined zinc (thousand tonnes) Pitt tt ttt tt titi titi 8 4 | =~ o i g Source: ILZSG Billiton Metals Page 90 Pn As it became clear that the demand-side of the equation was not in a position to come to zinc's rescue, the pressing need for some hefty smelter cutbacks became increasingly apparent. By the end of 1992 total reported stocks had risen to 980,000 tonnes, equating to almost 10 weeks' worth of consumption, compared with around 6.3 weeks' a year earlier. In 1992 the permanent closure of the Overpelt smelter was quickly factored in, offset as it was by expansions elsewhere. Meanwhile, a decision to close the Crotone plant in Italy was siibsequently reverted in the still favourable price environment. Indeed, the smelters' unwillingness to cut their production was completely understandable given the large concentrate overhang in existence which enabled them to secure even better treatment terms with the miners. This reluctance continued into early 1993 and it was the mining companies which decided to cut their production. This briefly boosted zinc prices, but the cutbacks soon became factored in, particularly as this still failed to prompt smelter cutbacks or closures. Against this backdrop the build-up of stocks continued, most of which was accumulated on the LME. LME stocks were already at record levels of 457,525 tonnes at the end of 1992. By the end of 1993 they had virtually doubled again to stand at 906,700 tonnes and total reported stocks at the end of the year equated to around 14 weeks' consumption. It is no surprise therefore that by late September the zinc price had slumped to a six year low of $872/tonne (39.5 cents/Ib) basis three months. For the year as a whole the cash zinc price averaged just $962/tonne (43.6 cents/1b). , Furthermore, zinc prices remained in the doldrums for much of 1994, despite substantial improvements in some of the other base metals. Again this was quite simply a reflection of this market's poor fundamentals. Sentiment was briefly boosted in late 1993/early 1994 by rumours that a co-ordinated smelter closure was to take place in Western Europe. However, these hopes were subsequently dashed and the market registered its disappointment, falling to a six month low of $918/tonne (41.6 cents/Ib) in late April. Technical buying and short covering prompted a recovery but the market did not stray far from these lows. A number of piecemeal smelter cutbacks made in the early part of 1994 initially had little impact and LME stocks continued to build. They actually peaked at 1,239,350 tonnes in mid-October but by then the rate of accumulation had started to slow and in any case prices had benefitted from a bout of fund-based buying. LME stocks then started to be drawn down in late October and by the middle of the following month the three month price traded to a high of $1214. Gains were subsequently pared but now that stocks are falling we are relatively optimistic about zinc's prospects in 1995. While it is true that if the recovery continues at its present pace it will take more than a year for stocks to return to anywhere near reasonable levels, the perception that things are improving should still help to boost prices in 1995 although we do not anticipate a full blown recovery until next year. Billiton Metals Page 91 Lead price information, period averages LME cash* £/tonne $/tonne cents/Ib Ascarco premium cents/Ib 1990 2.6 1991 3.2 1992 47 1993 5.2 1994 January . 8.0 February 5.0 March 5.0 April 5.5 May 6.0 June 7.0 july 78 August 78 September 78 October 8.0 November 7.0 December 8.0 Year 69 * Prices quoted in dollars from July 1993 Table 5.2 Zinc price information, period averages LME cash* ——————_- £/tonne $/tonne cents/Ib Metals Week premium cents/lb 1990 1520.27 5.6 1991 1115.67 19 1992 1240.26 2.2 1993 926.31 2.6 1994 January 997.05 26 February 969.20 . 3.1 March 936.22 25 April 924.03 2.6 May 955.93 2.7 June 966.57 2.3 July 964.40 3.5 August 945.34 40 September 992.80 48 October 1058.90 5.6 November 1152.05 6.3 December 1114.78 6.7 Year 998.28 3.7 * Prices quoted in sterling prior to September 1988 Page 92 VI CONCLUSIONS LEAD Following four years of surplus we estimate that the lead market recorded a deficit in 1994, albeit a rather small one. In fact the accumulation of inventory continued well into the first half of last year, and it was the third quarter of the year before evidence of a drawdown emerged. Indeed, LME stocks did not begin to fall until well into the final quarter of 1994. As our supply/demand balance table indicates we believe that this market will record significant deficits both this year and next. Demand which increased by a sizeable 6.2% in the West last year will, in our view, continue to grow at above trend levels in 1995 and 1996. As we noted in Section II this will result largely from a resurgence in continental Europe and Japan, coupled with the ongoing strength of some of the industrialising economies, particularly those of South East Asia. Producers were able to increase output last year through a combination of depleting further their concentrate stocks and raising secondary output. There is scope to increase output further by these means, but in the case of the former it is extremely limited, as we believe concentrate stocks were already at or below normal operating levels at the end of 1994. Unless the Faro mine comes onstream more quickly than Table 6.1 Western world supply/demand balance in refined lead (thousand tonnes) Actual —~——————_-__ — Forecast— 1991 1992 1993 1994(e) 1995 1996 Production 4419 4438 4,437 4,500 4,610 4,675 Net imports 63 190 151 160 130 110 DLA sales 34 65 60 70 Total supply Consumption % change Implied surplus 19 (deficit) Stock ratio 48 (weeks' consumption at end of period) Price (US cents/lb) 36.0 26.2 25.4 Sources: ILZSG, Billiton Metals’ estimates [Billiton Metals Page 93 we expect the ability of producers to raise their primary output will be constrained throughout 1995. Thus, most of the increase in refined production this year will be in the form of secondary metal. Next year primary production should start to pick up again. The size of the deficit which was recorded in 1994 was further limited by the rise in net imports to the West, coupled with higher DLA disposals. In the case of the former, concentrate shortages in Kazakhstan are likely to limit metal shipments to the West, but China should continue to make a major contribution. As for DLA sales, we believe that the easing USA market will dissuade that body from revising upwards its monthly disposals as was the case in 1994, but that the programme will continue given the higher prices that are likely to prevail. Although LME stocks ended 1994 some 34,775 tonnes above their end-1993 level, they were nonetheless 29,225 tonnes below their peak, recorded in late October. More significant, however, was the level of producer stocks. According to figures published by the ILZSG total reported producer stocks peaked at 210,000 tonnes at the end of March, and we estimate that by the end of the year they had fallen by some 85,000 tonnes. Thus, producers entered the current year with very low inventories indeed. ' The perception that the fundamentals of this market were improving, coupled with sporadic fund-based buying resulted in a steady improvement in the price environment during 1994. The underlying strength of some of the other metals in the base metal complex was also supportive of higher lead prices. Given the very low level of stocks currently held by producers the shortfalls we are forecasting both this year and next, will be met from the highly visible LME stocks. Thus, we believe the stage is set for a prolonged period of high prices. LME and producer stocks of lead (1992-1994) (end period, thousand tonnes) 1 A A HU HI 8 ALLE VEOH B boot eee eeeee eee _ 8 Jan =) Producer [Billiton Metals Page 94 ZINC The stock increase in lead over the course of the past four years pales into ra gascacaa when compared to that of zinc. Between 1989 and the end of 1994 total reported stocks in the West rose by an estimated 1.138 million tonnes. In fact total stocks actually peaked during the third quarter, when at one point they stood at around 16 weeks' consumption. Producer stocks actually fell steadily throughout the year, but during the first half and’ beyond this was more than offset by the ongoing accumulation in LME warehouses. By mid-October these totalled 1,239,380 tonnes, and by the end of the year had fallen by a mere 54,150 tonnes to 1,185,200 tonnes. Nevertheless, they have remained on a steady downward path since the start of the year, and we expect to see this trend remain in place for some time to come. Unfortunately, we believe that the rate of decline will be rather laboured, despite the fact that the demand outlook is good. Whereas lead demand rebounded strongly in 1994, zinc recorded a rather more modest 3.1% growth. While demand in North America continued to expand strongly, this was partly offset by a rather patchy performance in the Western European economies, coupled with a third consecutive year of decline in Japan. Western world supply/demand balance in slab zinc (thousand tonnes) Actual ———-__ — Forecast—— 1991 1992 1993 1994(e) 1995 1996 Production 5,405 5445 5450 5,380 5,375 5,550 Net imports 62 118 306 460 500 400 375 DLA sales 19 23 15 25 Total supply 5,903 5,790 Consumption 5,700 6,025 % change 43.1% +5.7% Implied surplus 68 144 203 (235) (deficit) Stock ratio 6.0 6.0 . ; 143 12.1 (weeks' consumption at end of period) Price (US cents/lb) ~ 66.7 50.6 55.3 Sources: ILZSG, Billiton Metals' estimates Billiton Metals Page 95 We believe that a rather more robust performance is in prospect both this year and, to a lesser extent, next. North American demand will remain strong, although the rate of growth will slow from its 1994 rate. This, however, will be more than compensated for by faster growth in Western Europe coinciding with a rebound in Japanese demand and ongoing growth in South East Asia. Our production forecast assumes that producers exercise restraint both this year and next. This will be easier in 1995 than in 1996, given that concentrate availability will increase only gradually this year. However, rising mine production and higher treatment charges, as well as higher metal prices, will make restraint more difficult in 1996. While the West will remain a significant net importer of zinc during the forecast period, we believe that the peak has passed. Imports from both the CIS and China increased significantly during the early 1990's, while at the same time exports from the West to Eastern Europe and China all but dried up. We estimate that net imports to the West totalled around half a million tonnes in 1994, compared with just 62,000 tonnes in 1990. Nevertheless, towards the end of last year there were signs of change. Production in the CIS has continued to fall, and there are signs that the slump in domestic demand, evident since 1988, started to bottom out last year. Demand is now growing strongly in Eastern Europe, and this will constrain the amount of material available for export to the West despite reviving production in Poland and Bulgaria. The China situation remains enigmatic, but it appears that the level of exports further ahead will depend upon a combination of their ability to import Western concentrates and the level of domestic premia. Exports, therefore, are likely to remain sporadic as has been the case in recent years. Overall, then, while the West will remain a net importer of zinc metal for the foreseeable future we believe that levels will be lower than the 1994 peak during the forecast period. LME and producer stocks of zinc (1992-1994) (end period, thousand tonnes) PLL ttt ttt 100.0 4 @ Billiton Metals Page 96 APPENDICES : I) LEAD MINES Il) LEAD SMELTERS III) LEAD REFINERIES IV) ZINC MINES V) ZINC SMELTERS VI) FORMER EASTERN BLOC SMELTERS/REFINERIES APPENDIX I - LEAD MINES Additions to Western world lead mine capacity have been pretty insignificant in recent years. We estimate that between end-1991 and end-1993 it rose by just 15,000 tonnes and that this was more than cancelled out by a 30,000 tonne decline last year. This year we are expecting capacity to rise slightly before recording a more respectable increase in 1996. The most notable development in the medium term will be the start-up of MIM's McArthur River mine in Australia, which should attain its 45,000 tpy capacity in 1996. This should boost Australia's capacity to around 640,000 tpy by the end of that year. A number of mine closures caused Western European mine capacity to fall in the early 1990's, although it has since stabilised and should start to pick up again in 1996. However, the only really significant addition planned so far is the expansion of the Aznalcollar mine in Spain from 17,000 tpy to 50,000 tpy by 1997. Meanwhile, the start-up of San Andreas Resources' Prairie Creek mine in 1996 should help to stem the recent decline in production capacity in North America. Latin American capacity should be boosted slightly in the next couple of years although the new mine start-ups are of far greater significance to the zinc market. In recent years mine capacity in Africa has also been expanded. First there was the start-up of the Guemessa mine in Morocco, which will have the capacity eventually to produce 25,000 tpy of contained lead, and last year the 8,000 tpy Bougrine mine came onstream in Tunisia. Western world lead mine capacity (thousand tonnes contained lead per year, at year end) 1991 1992 1993 1994 1995 North America 1,008 1023 = 1,033 1,003 Western Europe 379 353 339 339 Latin America 502 492 492 494. Asia 151 151 151 145 Australasia 579 611 599 599 Africa 206 209 226 230 Western Total 2,825 2,839 Increment +14 [Billiton Metals Western world lead mine production Total 1.789 million tonnes Total 2.552 million tonnes I North America 1 Western Europe fF Latin America Asia Total 1.998 million tonnes EB Australasia | Afri Total 2.588 million tonnes North America USA Leadville Sweetwater West Fork Magmont Red Dog Brushy Creek Buick Fletcher Viburnum Van Stone Greens Creek Major lead mines in the Western world Ownership Capacity (end year, thousand tonnes) 1991 ASARCO (53.1%) ASARCO Cominco Doe Run Doe Run Doe Run 65 Doe Run 115 Equinox Resources 3 Greens Creek 10 1992 1993 1994 1995 1996 Also produce zinc. Build u in output will compensate for shortfall of concs from Cominco's Magmont mine to ASARCO's Glover smelter. Also produces zinc. Ore depletion led to run down of production, Closed six months ahead of schedule in May 1994. Zinc is main product. Temporarily closed in 1984. Reopened mid-1989. Also produces some zinc. Mines’ operating rate cut in 1993 to reduce concentrate stockpile. Qn care and maintenance since early 1993. Also produces zinc. Closed in summer 1993 in face of ape prices, but expected to reopen once the market improves. Location Lucky Friday Montana Tunnels Bathurst Polaris Sullivan Faro Sa Dena Hes Little River Prairie Creek Major lead mines in the Western world Ownership Capacity (end year, thousand tonnes) 1991 1992 1993 1994 1995 1996 Hecla Mining 20 20 20 20 20 20 Pegasus Gold 5 5 5 5 5 5 Total USA 635 630 640 610 620 620 Brunswick Mining 90 90 90 90 90 90 & Smeltin; (Noranda. Cominco 38388 38 38 38 Cominco 65 65 65 65 65 65 Anvil Range 100 100 Cominco/Teck 40 40 Breakwater Resources Heath Steele Mines San Andreas Resources Produced as by-product of silver. Expansion expected to raise capacity to 30,000 tpy by 1998. Also produces some zine. Zinc is main product. Also produces copper. Zinc is main product. Closed since April 1993. Set to reopen H2 1995. Came onstream July 1991. Also produces zinc. Temporarily closed since December 1992. Unlikely to reopen until prices pick up. Production suspended November 1990 due to low price and poor economic climate. Also produces co Bs and zinc. Closed July 1993 for economic reasons. Set to reopen Q4 1994. Due onstream carly 1996. Eventual capacity 60,000 tpy. Will also produce zinc. Western Europe France Gays River Chessy Bad Grund Olympias Stratonion Navan Galmoy Iglesias, Masua Bleikvassli Aljustrel Aznalcollar Major lead mines in the Western world Ownership Capacity (end year, thousand tonnes) 1991 Westminer 10 Total Canada _373 Total North America 1,008 Metaleurop Kassandra Mines ) 30 Kassandra Mines ) Tara Mines 40 Arcon International 0 Resources SIM , 10 BleikvassliGruber 4 Pirites Alentjanas 4 Andaluza de Piritas 17 1992 10 393 1,023 1993 10 393 1,033 1994 10 393 1,003 1995 10 373 993 1996 10 398 1,018 Onstream January 1990. Will also produce zinc. Could be onstream in 1996 if pian Exped of BRGM. goes to plan ected to prod fice 1306 ty ct | lead. Also prpduced zinc. Closed March 1992. Also produce zinc. Expansion mooted. Zinc is main product. Due onstream Q2 1996. Eventual capacity 5,000 tpy. Mainly zinc. Several small mines. Also produce zinc. Came onstream mid-1991. Production suspended 1993. Also produces copper and zinc. Expahsion to 50, 000 tpy scheduled by 1997, Major lead mines in the Western world Location Ownership Capacity (end year, thousand tonnes) 1991 1992 1993 1994 1995 1996 Reocin Asturiana de Zinc 8 Zinc is main product. Linares Cia La Cruz 14 Rubiales Exminesa 12 Zinc was main product. La Carolina Los Guindos 8 Sotiel Minas de Almagrera 5 Also produces zinc. Mazzaron Navan Resources 0 Could be onstream in 1996. Eventually to produce 4,500 tpy lead. Silicatos Portman Golf Limited reserves. Also | produces zinc. Temporarily closed in 1991. Restart mooted in 1994 but no decision as yet been made by . regional authorities. Total Spain Garpenberg mines _ Boliden Mineral Also produces zinc. Kristineberg mines _ Boliden Mineral Laisvall Boliden Mineral Also produces some zinc. Reserves expected to become depleted. Closure a possibility but as yet no decision. Zinkgruvan Union Miniere Also produces some zinc. Sverige Total Sweden Parys Mountain Anglesey Mining Oni jinally scheduled of funding halted development. Location Yugoslavia Kriva Feja Srebrenica Vares Lece Mezica Stari Trg Kisnica Rudnik Suplja Stena Sasa Major lead mines in the Western world Ownership Ro Rudnik Olova I Cinka: Blagodat Ergoinvest Ergoinvest Ro Rudnik Olova I Cinka: Lece Rudnik Svinca in Topilnica Mezica RMHK Olova I Cinka: Trepca RMHK Olova I Cinka: Trepca RMHK Olova I Cinka: Trepca RMHK Olova I Cinka: Trepca Sour Rudarsko Metalursk o Prerabotuvacki Kombinat "Zletovo - Sasa" Sour Rudarsko Metalursk o Prerabotuvacki Kombinat "Zletovo - Sasa" Capacity (end year, thousand tonnes) 1991 1992 1993 1994 1995 1996 Also produces zinc. Also produces zinc. Also produces zinc. Also produces zinc. Also produces some zinc. Also produces zinc. Production suspended 1987. Also produces zinc. Also produces zinc. Latin America Argentina Bolivia Brazil Chile Honduras Mexico Angela Aguilar Asientos Bolivar Various Paracatu Canoas Toqui El Mochito Naica, Zimapan Fresnillo Various Major lead mines in the Western world Ownership Sour Hemijska Industrija "Zorka" Total Yugoslavia Total Western Europe Cerro Castillo Cia Minera Aguilar Cia Minera Quioma Comibol Various Morro Agudo Plumbum Sdad Contractual Minera "El Toqui" Breakwater Resources Cia Fresnillo Industrial Minera Mexico Capacity (end year, thousand tonnes) 1991 1992 1993 1994 15 15 15 15 105 105 105 379 353 1995 15 105 1996 15 Also produces zinc. 105 Also produces zinc. Also produces zinc. On care and maintenance since 1990, scheduled back onstream in Zinc is main product. Also produces zinc. Also produces zinc. Also produces zinc. Real de Angeles San Francisco, Clarines Tizapa Others Atacocha Huaron Animon Milpo Raura San Vicente Huanzala Iscay-Cruz Quiruvilca Casapalca Major lead mines in the Western world Ownership 1991 Minera Real de 45 Angeles Minera San 20 Francisco del Oro Penoles 0 Various 50 Total Mexico 195, Btacocha *” Cia Minera Huaron 5 Cia Minera Chungar 4 Cia Minera Milpo — 20 Cia Minera Raura 10 Cia Minera San 5 Ignacio le Marococha Cia Minera Santa Luisa Cia Paraibuna Minera Iscay Cruz Corp Minera Nor Peru Centromin 1992 45 20 0 40 1993 45 20 0 40 1994 45 20 1995 45 20 Capacity (end year, thousand tonnes) 1996 45 20 Also produces zinc. Also produces zinc. Also produces zinc. Also produces zinc. Also produces zinc. Also produces zinc. Zinc is main product. Also produces zinc. Also produces zinc and some copper. Cerro de Pasco San Cristobal Yauricocha Andaychagua Colquijirca Manuelita Various Agnigundala Rajpura-Dariba Sarguipalli Major lead mines in the Western world Ownership Centromin Centromin Centromin Centromin Sdad Minera El Brocal Sociedad Minera Yauli Various Total Peru Total Latin America Hindustan Zinc Hindustan Zinc Hindustan Zinc Capacity (end year, thousand tonnes) 1991 1992 1993 1994 1995 1996 Also produces zinc and some copper. Also produce zinc and some copper. Also produce zinc and some copper. Also produces zinc. Also produces zinc and copper. Closed early 1993. Company lans to close mine, but timing uncertain. Also produces zinc. Company intends to shut mine buf has not yet | announced exact timing. Myanmar South Korea Udaipur Rampura-Agucha Koushke Tran Kuh Angouran Haft-deh Emarat Matsumine Kamioka Toyoha Bawdwin Yeon Hwa Major lead mines in the Western world Ownership Hindustan Zinc Hindustan Zinc Total India Cherkate Sahami Sanati va Maadani Irani Bama Mining Calcimine Shahin Mining & Industrial Hanaoka Mining Mitsui Mining and Smelting Toyoha Mines No 1 Mining Corp Young Poon, Mining 6 Capacity (end year, thousand tonnes) 1991 1992 1993 1994 1995 1996 Several mines. Also produce zine. Came onstream March 1991. Plans to increase production by around 4,000 tpy by 1997/98. Zinc is main product. Zinc is main product. Zinc is main product. Also produces copper and zinc. Company P ans to close mine at end-Q] 1994. Zinc is main product. Mozumi pit to close. Also produces zinc. Also produces some zinc. Two mines in different locations. No 2 mine apparent! closed March 1987. Also produces zinc. Australasia Australia Karnchanaburi Kity Hellyer Cadjebut Twelve Mile Bore Woodlawn McArthur River Mount Isa /Hilton Woodcutters Lady Loretta/ Thalanga Major lead mines in the Western world Ownership 1991 Karnchanaburi 18 Exploration and Mining Lead ConcentrateCo 2 Cinko ve Kursun 15 Metal Sanayii (Cinkur) Total Asia Aberfoyle Western Metals Western Metals Denehurst MIM Mt Isa Mines Aztec Mining Pancontinental Mining 1992 18 1993 18 1994 18 1995 18 Capacity (end year, thousand tonnes) 1996 18 Also produces zinc. Also produces zinc. Also produces zinc. Zinc is main product. Scheduled to close in 1995, will be replaced by Twelve Mile Bore deposit: Zinc is main product. Also produce copper. On schedule for 1995 start-up. Also produces copper and Zinc. Operating well below capacity. Thalanga onstream June 1990. Lady Loretta not yet developed. Rosebery Broken Hill Touissit Djebel Aouam Major lead mines in the Western world Ownership Pasminco Pasminco Pasminco Total Australasia Cie Miniere de Touissit SMDA BRPM & Omnium Nord African Capacity (end year, thousand tonnes) 1991 55 1992 55 1993 55 1994 55 1995 55 1996 55 Production cut back by two- thirds in 1991 in the face of low prices, although actual output somewhat higher. Company now returning to normal production. Zinc is main product. rao work to be carried out in next four years which if successful may raise ore production. Also produces zinc. Capacity expected to rise to 185,000 tpy by late 1997. North mine clo: sed early 1993. Three mines. Closed since May 1993 for economic reasons. Decision on future not expected until end-1994. Officially opened late 1992 sapacity eventually to reach 25,000 tpy. Also produces copper and zinc. South Africa Tunisia Zambia Rosh Pinah Kombat Tsumeb Aggeneys Pering Bougrine Kabwe Major lead mines in the Western world Ownership Capacity (end year, thousand tonnes) 1991 1992 1993 1994 1995 1996 13 13 13 13 13 13 Goldfields Namibia 6 Goldfields Namibia 7 Black Mountain 100 Shell South Africa Government/ Metall Mining ZCCM Total Africa Total Western world Also produces ci rand zinc. Wtture in Sout but as mine apparently remains Open. Also produces copper. Also produces copper and Zinc. Zinc is main product. Also produces some copper. Mainly a zinc deposit. Came'onstream May 1994. Closed June 1994, but reopening mooted. APPENDIX II - LEAD SMELTERS The table below shows that Western world lead smelting capacity has been contracting during the early 1990's. By the end of last year it had fallen to 2.875 million tpy, some 74,000 tpy below its end-1991 level. By far the sharpest declines have occurred in Western Europe and Latin America. Capacity in the former fell in 1992 following the closure of Metaleurop's 80,000 tpy Cartagena plant early that year. In the case of the latter the Chihuahua smelter in Mexico was forced to close in late 1993 for environmental reasons and Plumbum's 22,000 tpy Santa Amaro plant reportedly also was closed by the end of that year. Following the start-up of Korea Zinc's 80,000 tpy Onsan smelter in 1992 and the 40,000 tpy Zandjan plant in Iran, Asia's capacity rose to 497,000 tpy in 1993 compared with 357,000 tpy just two years earlier. However, capacity subsequently fell last year with the closure of Mitsubishi's 42,000 tpy Naoshima facility and the conversion to secondary feed at two other plants in 1994/95 will also have an impact. Looking further ahead Padaeng Industry is currently conducting feasibility studies for a 60,000 tpy smelter in Thailand, although as yet no firm details on this project are available. Production capacity in both North America and Africa has remained static in recent years although capacity at the Trail plant is to be expanded in 1996. Australasian capacity was boosted to 490,000 tpy in 1992 following the start-up of MIM's second Mount {sa plant. However, this was subsequently forced to close and capacity at the older plant which had started to be reduced, was raised to earlier levels again. We have assumed that the new plant will remain closed for the next couple of years. Key to the terms used to describe the various types of furnace: Water Jacket WJ Imperial Smelting Furnace ISF Newman Furnace NF Kivcet Furnace KF Rotary Furnace RF Electric Furnace EF Isasmelt Furnace IM Queneau/Schuhmann/Lurgi QSL Western world lead smelting capacity (thousand tonnes per year, at year end) 1991 1992 1993 1994 North America 554 554 554 554 Western Europe 1,004 Latin America Asia Australasia Africa Western Total Increment Billiton Metals Location North America United States East Helena Glover Herculaneum Belledune Ownership Total US Brunswick Cominco Total Canada Total North America Major lead smelters in the Western world Capacity (end year, thousand tonnes) 1994 1991 68 1992 68 1993 68 68 1995 1996 68 68 Process Upgrade work should be completed mid-1995, Doe Run's Buick smelter (140,000tpy) used as peak load standby smelter. Herculaneum operated at 160,000 tpy in recent years, but effective capacity scheduled to increase to 172,000 tpy in 1994. Temporarily closed November 1993 to January 1994 due to lack of feed. Further six week saaown in summer Switchover to QSL technology did not go smoothly. Cominco abandoned QSL technology early 1993 and to install Kivcet process. Old smelter remains operational. Capacity to rise to 120,000 tpy by end-1996. Location Western Europe Austria Belgium France Germany Arnoldstein Hoboken Noyelles Godault Noyelles Godault Duisburg Stolberg Hamburg Nordenham Lavrion Porto Vesme Porto Vesme Cartagena Major lead smelters in the Western world Ownership 1991 Bleiberger Bergwerks 24 MHO 125 Metaleurop 110 Metaleurop 40 Berzelius Metallhutten (MIM) Berzelius Metallhutten (MIM) Norddeutsche Affinerie Metaleurop EMMEL Nuova Samim Nuova Samim Metaleurop 1992 24 1993 1994 24 24 1995 24 Capacity (end year, thousand tonnes) 1996 24 Process Remarks Temporary cutbacks in production in 1993 and 1994, New QSL furnace replaced old Water Jacket. Production suspended since mid-1989. Expansion under consideration. Closed from July to October 1993. Closed since early 1992 for environmental reasons. Unlikely to reopen. UK Yugoslavia Latin America Argentina Smelter Ronnskar Avonmouth Kosovska Titov Veles Ty nan } Jujuy Others Santa Amaro Panelas Chihuahua Torreon Ownership Boliden MIM Trepca Zletovo Total Western Europe Martin Munster Impursora Metalurguica del Noresk Various Plumbum Plumbum Industrial Minera Mexico Penoles Major lead smelters in the Western world Capacity (end year, thousand tonnes) 1991 1992 1993 1994 1995 1996 65 65 65 65 65 65 45 45 45 45 55 55 90 90 90 90 90 90 30 30 30 30 30 30 Process Remarks Production constrained by recent unrest. Use some secondary feed. Closed end 1993. Forced to close tempor- arily in late 1989 because of failure to install pollution controls. Closed late 1993 for environmental reasons. Location 1992 1993 Vizakhapatnam Chanderiyah Zandjan Kosaka Hachinohe Hosokura Naoshima Kamioka Harima Chigirishima Bawdwin Tundoo Major lead smelters in the Western world Ownership Centromin Total Latin America Hindustan Zinc Hindustan Zinc National Iranian Lead & Zinc Co Dowa Mining Hachinohe Hosokura Mitsubishi Mitsui Sumitomo Metal Mining Toho Zinc No 1 Mining Corp Hindustan Zinc 1991 95 Capacity (end year, thousand tonnes) 95 95 1994 95 1995 95 1996 95 Process Ww) Remarks Came onstream October 1991. ‘Teething problems hampered output levels for a while. Switching to secondary feed in 1994. Closed April 1994. Switching to secondary feed in 1995. Blast furnace upgraded in 1990. Per South Korea Thailand Turkey Australasia Australia Onsan Karnchanaburi Kayseri Port Pirie Cockle Creek Mount Isa Qued-El-Heimer Tsumeb Kabwe Major lead smelters in the Western world Ownership Korea Zinc Thailand Metal Co Cinko-Kursun Total Asia Pasminco Pasminco MIM MIM Total Australasia SFPZ Tsumeb ZCCM Total Africa Total Western world Capacity (end year, thousand tonnes) 1991 1992 1993 1994 0 17 10 357 250 30 10 460 50 17 10 442 250 30 60 Process 1995 1996 80 80 80 80 QSL 17 7 #W oO RF 10 10 10 10 30 Remarks Started up May 1992. Capacity to be reduced when néw smelter came onstream. However the latter was closed late 1993 and old plant was to operate at 170,000 tpy. Operating at nearer 30,000 tpy. [APPENDIX III - LEAD REFINERIES | The summary table below shows that Western world lead refinery capacity fell by 76,000 tpy between the end of 1991 and end-1994. However, additions in both North America and Asia should help capacity levels to pick up again this year and next. North American production capacity will be boosted this year by the start-up of Pacific Dunlop's Columbus secondary plant in the US. The company's existing smaller plant will close once the latter is up and running. Meanwhile, it is reported that capacity at Cominco's Trail operation in Canada should increase to 120,000 tpy in 1996 once modernisation work has been completed. In Western Europe capacity fell by 100,000 tpy in 1992, primarily as a result of the closure of Metaleurop's Cartagena plant in Spain for environmental reasons. By the end of this year the capacity of Metaleurop's Nordenham plant will be cut to 90,000 tpy, although secondary output simultaneously will increase. The permanent closure of IMMSA's 60,000 tpy Monterrey refinery, also for environmental reasons in late 1993, coupled with the closure of a smaller plant in Brazil caused a sharp fall in Latin American capacity in that year. Meanwhile, despite the closure of two Japanese refineries last year we estimate that Asian capacity will pick up again with the help of the start-up of two small-sized secondary plants in Malaysia and Saudi Arabia. Key to the terms used to describe the refinery process employed: Pyrometallurgical primary Pl Pyrometallurgical secondary P2 Electrolytic primary El Electrolytic secondary E2 Western world lead refining capacity (thousand tonnes per year, at year end) 1991 1992 1993 1994 North America 1,899 1,934 1,934 1,934 Western Europe = 2,155 2,055 2,055 2,065 Latin America 558 558 476 476 Asia 773 808 845 829 Australasia 280 280 Africa 207 Western Total Increment Billiton Metals Major lead refineries in the Western world Location Ownership Capacity (end year, thousand tpy) Process Remarks 1991 1992 1993 1994 1995 1996 North America United States Omaha ASARCO 140 140 140 140 140 140 Glover ASARCO 110 110 110 110 110 110 Herculaneum Doe Run 204 204 204 204 204 204 Buick Doe Run 55 55 55 55 55 55 Onstream Q4 1991. Los Angeles) 96 96 96 96 96 96 Middleton } 80 = 80 80 80 80 80 Indianapolis } 90 90 90 90 90 90 Los Angeles } 90 90 90 90 90 90 Pacific Dunlop . Frisco } GNB 50 50 50 50 50 50 Columbus} 20 20 20 20 0 0 Columbus} 0 0 0 0 70 90 Due onstream April 1995 and existing plant will close. Norwalk PBX 25 25 25 25 25 Onstream March 1992. Tejas Powerlab 20 20 20 20 20 Came onstream Q3 1991. Baton Rouge } eo 1kill 80 80 80 80 80 etals Forest City } Corp 25 25 25 25 25 Beech Grove } Refined Metals 15 15 15 15 15 0 Memphis } > 3 35 «35858 Troy Sanders Lead Major lead refineries in the Western world Location Ownership Capacity (end year, thousand tpy) Process Remarks 1991 1992 1993 1994 1995 1996 Reading General Battery Corp 60 60 60 60 60 60 Muncie Exide 75 75 75 75 75 75 Dallas Exide 20 20 20 20 20 20 Cleveland Master Metals 10 10 10 10 10 10 Eagan Gopher 40 40 40 40 40 40 Tampa Gulf Coast 20 20 20 20 20 20 Lyons Station East Penn Man Co 35 35 35 35 35 Leeds Interstate Lead 40 40 40 40 40 40 Rossville Ross Metals 15 Nashville GSR 10 Others Various Estimated combined capacity of refineries smaller than 10,000 tpy. Total US Belledune Brunswick Trail Cominco Old plant continues to operate following technical problems experienced in switch to QSL technology. . Modernisation work should be completed by end-1996, raising capacity to 120,006 tpy. Major lead refineries in the Western world Location Ownership Capacity (end year, thousand tpy) Process Remarks 1991 1992 1993 1994 1995 1996 Montreal American Iron & 20 20 20 20 20 20 Metal Ville St Nova Pb Inc 60 60 60 60 60 60 Catherine Mississagua Tonoli 40 40 40 40 40 40 Toronto Canada Metal Co 12 12 12 12 12 12 Closed temporarily October 1992. Other Various 15 15 15 15 15 15 Total Canada 319 319 319 319 329 Total North America 1,934 1,934 1,934 1,984 2,024 Western Europe Austria Arnoldstein Bleiberger Bergwerks Belgium Hoboken Hoboken-Overpelt ; Beerse Campine Started up May 1992. Beerse Metallo Chimique Brussels FMM Dublin Metal Refiners Location Noyelles- G ault Escaud- Villefranche } oeuvres | Toulouse } Bazoches } Bourg Fidele Pont Sainte Maxence Stolberg Braubach Hamburg Nordenham } Oker } Berlin Rommerskirchen Freiberg Ownership Metaleurop STCM Metal Blanc GAST Berzelius Metallhutten Metallgesellschaft Major lead refineries in the Western world Capacity (end year, thousand tpy) 1991 1992 1993 1994 1995 1996 150 150 150 150 150 150 40 40 40 40 40 40 40 40 40 40 40 40 25 25 25 25 25 25 27 27 27 27 27 27 12 12 12 12 12 12 20 20 20 20 20 20 120 40 Norddeutsche Affinerie 45 Metaleurop Alfred Bauer Metallhutten & 120 70 6 15 Rec cling-gesellschatt cl Scuhmacher Muldenhutten 35 Process Restructuring at these two plants will result in the loss of around 30,000 tonnes of lead in the year beginning October 11994. Secondary production to increase Once modern- isation work completed late 1995 but capacity will drop to 90,000 tpy. In former East Germany. Battery scrap is major raw material. Major lead refineries in the Western world Location Ownership Capacity (end year, thousand tpy) Process Remarks 1991 1992 1993 1994 1995 1996 Krautscheid Varta Batterie AG 30 30 30 30 30 30 Hanover Nuremberg Hetzel & Co. 24 24 24. «24 24 24 Greece Lavrion EMMEL 0 0 0 0 0 0 Production suspended since mid-1989. Netherlands Arnhem Billiton 35 0 0 0 0 0 Closed end 1991. Delft Uzimet 20 20 20 20 20 20 Italy San Gavino } 90 90 90 90 90 90 San Gavino } Nuova Samim Milan } 60 60 60 60 60 60 Caserte } 40 40 40 40 40 40 La Spezia Italpiombo 15 15 15 15 15 15 Milan Plomboleghe 20 20 20 20 20 20 Buccino Metalli Derivati 35 35 35 35 35 35 Brescia Plombifera Bresciana 20 20 20 20 20 20 Barcelone Derivados de 5 5 5 5 5 5 Minerales y Metales Murcia Elacon Cartagena Metaleurop San Estebande Metalurgica de Gormaz Gormaz Major lead refineries in the Western world Location Ownership Capacity (end year, thousand tpy) Process Remarks 1991 1992 1993 1994 1995 1996 Madrid Metalurgica de 10 10 10 10 10 10 , Cubas Medina del FESA 12 12 12 12 12 12 Campo Ronnskar Boliden 65 65 65 65 65 65 Lanskrona Boliden-Bergsoe 30 30 30 30 30 30 Wakefield } 25 25 25 25 25 25 Wakefield plant purchased from Chloride. Northfleet } Britannia Refined Metals Northfleet } 40 40 40 40 40 40 Newcastle } Calder Industrial 50 50 50 50 50 50 Glasgow } Metals : Darley Dale HJ. Enthoven 65 65 65 65 65 London} 20 20 20 20 20 BLM Welwyn } 20 20 20 20 20 Gardén City Woodville Midland 15 15 15 15 15 15 Leeds Wilson & Jubb 10 10 10 10 10 10 Yugoslavia Kosovo Mitrovica Trepca 90 90 90 90 90 90 Titov Veles Zletovo 30 30 30 30 30 30 Total Western Europe 2,155 Major lead refineries in the Western world Location Ownership Capacity (end year, thousand tpy) Process Remarks 1991 1992 1993 1994 1995 1996 Latin America Argentina ujuy | Martin Munster } uctiman Tany ) Midialeratea del Noreste Others Various Santo Amaro © Plumbum Closed end 1993. Panelas Plumbum Jacarei Tonolli Cacapava FICM Others Various Monterrey IMMSA Closed permanently late 1993. Torreon Penoles Nauca Fundentes Xalostoc Metalurgica de Plomo Peru La Oroya Centromin Venezuela Guaraca Bera de Venezuela Location Other Latin America Indonesia Tran Japan Bombay Tundoo Vishak- hapatnam Chanderiyah Majiwada Kalipark Surabaya Sorb Abad Zandjan Kosaka Hosokura Naoshima Major lead refineries in the Western world Ownership Capacity (end year, thousand tpy) Process Remarks 1991 1992 1993 1994 1995 1996 Various Total Latin America Hindustan Alloys Manufacturing Hindustan Zinc Hindustan Zinc Hindustan Zinc Onstream in 1991. Indian Lead Indian Lead Indra Eramulti Logan Usine d'état National Iranian Lead & Zinc Co Dowa Mining Mitsubishi Metal Switching to seconda production only in 1994. Mitsubishi , Closed indefinitely from April 1994. ompa an Yy looking fora ntyer Location Malaysia Myanmar Philippines Saudi Arabia Kamioka } Takehara } Saganoseki Harima Chigirishima Ichikawa Yamamoto Yawata Amagasaki Kariya Selayang Port Klang Bawdwin Meycawayan Riyadh Major lead refineries in the Western world Ownership Capacity (end year, thousand tpy) 1991 1992 1993 1994 1995 1996 a, 34 34 34 34 34 34 Mitsui Mining & Smelting 44 44 44 44 44 44 Nippon Mining 36 36 36 0 0 0 Sumitomo Metal 30 30 30 30 Mining Toho 95 95 95 95 Ichikawa 20 20 20 20 Nikon Kai 15 15 15 15 Nippon Kappan 15 15 15 15 Osaka Lead 20 20 20 20 Tomatsu 20 20 20 20 Total Japan 376 = 376 Metal Reclaimation 30 40 Oriental Technique 18 18 No 1 Mining Corp 10 10 Lead Smelters 13 13 National Lead 18 18 Smelting Process Remarks Switching to secondary feed in 1995. Closed indefinitely from May 1994. Operated at well below capacity. Due onstream November 1994. Location Australasia Australia Hellyer Cadjebut Twelve Mile Bore Woodlawn Cobar McArthur River Mount Isa/Hilton Golden Grove/ Scuddles Woodcutters Thalanga Lady Loretta Major zinc mines in the Western world Ownership 1991 Cayeli (49% Metall Mining) Total Asia Aberfoyle Western Metals Western Metals Denehurst Golden Shamrock Mines MIM Mount Isa Mines Murchison Zinc/ 70 Esso/ Aztec Mining Normandy Poseidon 70 Pancontinental Mining 40 Pancontinental Mining 0 Capacity (end year, thousand tpy) 1992 1993 1994 1995 32 1996 32 Remarks Start-up scheduled for os 1994. Eventual capacity of 40,000 tpy, but will not reach this until 1997, Will also produce copper. Also produces lead. Also produces lead, Scheduled to become exhausted in 1995, but will be replaced by start up of Twelve Mile Mainly copper. On schedule for 1995 start up. Hilton mine officially opened mid- 1990. Producing well below this level. Came onstream June 1990. Originally due onstream in 1993 but timing now uncertain. Planned capacity of 73,000 tpy. Asia India Rajpura-Dariba — Hindustan Zinc Zawar Hindustan Zinc Rampura-Agucha Hindustan Zinc Tran Koushke Bafgh Mining Co Iran Kuh Bama Mining Angouran Calcimine Haft-deh Emarat Shahin Mining & Industrial Japan Matsumine Hanaoka Mining Kamioka/ Mitsui Mining & Metal Mozumi Co. Toyoha Toyoha Mines Saudi Arabia Al Masane Arabian Shield Development South Korea Yeon Hwa Young Poong Mining Thailand Mae Sot Padaeng Industry Turkey Kayseri Cinko Ve Kursan Metal Sanayii (Cinkur) Location Mine Ownership 1991 35 40 20 20 70 12 & 55 85 40 37 40 50 20 20 70 12 36 60 55 25 75 40 1993 39 40 20 20 70 12 S& 55 70 40 Major zinc mines in the Western world 1994 41 40 90 20 20 70 12 So 55 25 40 Capacity (end year, thousand tpy) 1992 1995 41 40 90 20 20 70 12 Co. 55 1996 41 40 90 20 20 70 12 60 55 25 40 Remarks Three mines. Also produce lead. Commissioned April 1991. Fully integrated with the Chanderiya smelter. Plans to increase coricentrate production by 50,000 tpy in 1997/98. Also produces lead. Scheduled to close end-Q1 1994. Production suspended at Mozumi in August 1994, Also produces lead. Scheduled for start up in 1996. Eventual capacity 30,000 tpy. Also produces lead. Scheduled to close at end of 1994. Location Mine Raura San Vincente Huanzala Carahuacra Quiruvilca Casapalca Cerro de Pasco San Cristobal Morococha Yauricocha Andaychagua Animan Santander Colquijirca Manuelita Morococha Perubar Others Major zinc mines in the Western world Ownership Cia Minera Raura Cia Minera San Ignacio de Marococha (SIMSA) 1991 35 80 Cia Minera Santa Luisa 35 Cia Minera Volcan 25 Corp Minera Nor Peru 13 Centromin Centromin Centromin Centromin Centromin Centromin Cia Minera Chungar Cia de Minerales Santander Sociedad Minera El Brocal Sociedad Minera Yauli Minera Austria Duvaz Perubar Various Total Peru 23 170 35 12 17 12 15 20 30 8 Total Latin America 1,27 Capacity (end year, thousand tpy) 1992 1993 1994 1995 35 35 35 35 80 80 80 80 35 35 35 35 25 25 25 25 13 13 13 13 23 23 23 23 35 35 35 35 12 12 12 12 17 17 17 17 12 12 12 12 15 15 15 15 20 0 0 0 30 30 30 30 8 0 0 0 1996 35 80 35 25 13 23 35 12 17 12 15 0 30 0 Remarks Also produces lead and copper. Also produces lead. Also produces lead. Also produces lead and some copper Also produces lead and some copper. Also produces some lead. Also produces lead and some copper. Also produces lead. Closed early 1993. Also produces some lead Location Honduras Mexico Mine El Mochito Naica, Zimapan Fresnillo Various Real de Angeles San Francisco, Clarines La Minita Avalos Santa Barbara, Velardena Bismarck Tizapa Others Atacocha Huaron Hecay Gr Cruz (Pe C 35% Minera Peru) Milpo Major zinc mines in the Western world Ownership 1991 Breakwater Resources 40 Cia Fresnillo IMMSA 30 140 Minera Real de Angeles 47 (Empresas Frisco) Minera San Francisco el Oro Minera Capela Minera Toyahua Minerales Metalicos del Norte Penoles Penoles/Dowa Mining Various Total Mexico Cia Minera Atacocha Cia Minera Huaron Cia Paraibuna de Minera Iscay Cruz Cia Minera Milpo 20 15 5 Capacity (end year, thousand tpy) 1992 1993 1994 1995 1996 40 40 40 40 40 30 30 30 30 30 140 140 ~=140 47 47 47 20 20 20 15 0 5 5 25 25 50 Remarks Also produces lead. Also produces lead. Also produces lead. Also produces lead. Also produces some lead. Scheduled to close late 1995. Also produces copper. Also produces lead. Also produces lead, copper and silver. Due onstream J; Januay 1996. Eventual capacity of 60,000 tpy. Also produces lead. Major zinc mines in the Western world Capacity (end year, thousand tpy) Location i Ownership 1991 1992 1993 1994 1995 1996 Remarks Sour Hemijska 15 15 15 15 15 15 Also produces lead. Industrija “Zorka" Various Total Yugoslavia Total Western Europe Latin America Argentina Aguilar Cia Minera Aguilar Also produces lead. Angela Cerro Castillo Bolivia Bolivar Comibol Huari Huari Comsur Porco Comsur Chipas Tiwanacu Asientos Cia Minera Quioma Various Various Irece Cia Brasiliera de Bauxite Vazante Cia Minera de Metais Paracatu Morro Agudo Also produces, lead; Sa care and prain! enance since 1990. Scheduled back onstream in 1994. Various Cia Mercantile Industrial Inga Toqui Sociedad Contractual Plans to e op and capacity still furthe 4 Minera "El Toqui" a bandone aretap ot iw w prices. " Also produces lead Location United Kingdom Yugoslavia Falun Zinkgruvan Parys Mountain Kriva Feja Srebrenica Vares Lece Stari Trg Sasa Toranica Major zinc mines in the Western world Ownership 1991 Boliden Mineral 15 Stora Kopperberg, Union Miniere Sverige Total Sweden Anglesey Mining Ro Rudnik Olovo I Cinka "Blagodat' Ergoinvest 13 Ergoinvest 8 Ro Rudnik Olovo I 10 Cinka "Lece" RMHK Trepca 10 Sour Rudarsko 8 Metalursko . Prerabotuvacki Kombinat "Zletovo-Sasa" Sour Rudarsko 10 Metalursko . Prerabotuvacki Kombinat "Zletovo- Sasa" Sour Rudarsko 7 Metalursko . Prerabotuvacki Kombinat "Zletovo-Sasa Capacity (end year, thousand tpy) 1992 1993 1994 1995 15 15 15 14 1996 12 Remarks Also produces lead. Reserves expected to become depleted. Closure a possibility, but as yet no decision. Closed permanently. Ori nally scheduled to Start wu 1992, but lack of funding f ‘orce the suspension of development work. Botentiel copaesty of 13,000 tpy. Also produces lead. Also produces lead. Also produces lead. Also produces lead. Also produces lead. Also produces lead. Also produces lead. Major zinc mines in the Western world Capacity (end year, thousand tpy) Location Mine Ownership 1991 1992 1993 1994 1995 1996 Remarks Italy Norway Portugal Spain Iglesias, Masua_ _—— Miniere Iglesiente Bleikvassli Gruber Nordsulfid Pirites Alentjanas Bleikvassli Grong, Aljustrel Aznalcollar Andaluza de Piritas Reocin Asturiana de Zinc La Troya Rubiales Sotiel Minas de Almagrera Exminesa Exminesa Mazzaron Navan Resources Silicatos Portman Golf Total Spain Garpenberg Mines Boliden Mineral Kristineberg Mines Boliden Mineral 55 55 55 55 55 55 Several small mines. Also produce ie Temporarily closed for part of Commissioned June 1991. Production suspended 1993. Was to close in 1991 due to exhaustion of reserves but life extended following discovery of additional reserves. Expansion to 130,000 tpy scheduled by Also produces lead. Comp any expects to receive final planking y permission. Mine could sD up in 1996, Eventual capacity 000 tpy zinc. Temporarily closed since 1991. Restart podted | in 1994, but as yet re, ional authorities have not lecision. Also produces lead. Also produces copper and some lead. Major zinc mines in the Western world Capacity (end year, thousand tpy) Location Mine Ownership 1991 1992 1993 1994 1995 1996 Remarks Western Europe Austria Bleiberg Finland Pyhasalmi Vihanti Chessy Saint Salvy Bad Grund Meggen Olympias Stratonion Tara Galmoy Lisheen Bleiberger Bergwerks Outokumpu Oy Outokumpu Oy BRGM Metaleurop Metaleurop Metallgesellschaft Kassandra Mines Kassandra Mines Tara Mines Arcon International Resources Minorco/Ivernia West inally scheduled to closed in 39 but Zontinued into 1992. Expected to produce 25,000 tpy of zinc, though timing uncertain. Mine dosed end-1993 du due to depletion of reserves. Original lly scheduled to close in 199 Closed March 1992. Closed March 1992 because of low prices and stricter environmental legislation. Also produces lead. Also produces lead. Possible expansion if Bula deposit developed, , but as yet no such plans inalised Scheduled onstream mid-1996. Eventual capacity 50-60,000 tpy zinc. Will also produce lead. Possible start Bp in 1997. Planned BraD' of 180, 180) tpy zinc and y lea Location Mine West Arm Trout-Lake & Callinan Ruttan Snow Lake Kidd Creek Winston Lake Nanisivik Manitowadge Matagami Mattabi Louvicourt Prairie Creek H-W (Myra Falls) Major zinc mines in the Western world Ownership Hudson Bay Mining & Smelting’ Hudson Bay Mining & Smelting Hudson Bay Mining & Smelting’ Kidd Creek Mines Minnova Nanisivik Mines Noranda (Geco Division) Noranda (Matagami Division) Noranda (Mattabi Mines) Novicourt/ Aur Resources/Teck San Andreas Resources Westmin Resources Total Canada Total North America Capacity (end year, thousand tpy) 1991 1992 80 80 20 20 30 30 40 1,463 2,146 1993 1994 1995 1996 80 80 80 80 20 20 20 20 20 0 0 0 125 45 50 20 50 1390 1,335 1,355 2,069 2,070 2,020 2,040 Remarks Also produces copper. Also produces copper. Scheduled to close early 1994. Declining ore grades. Also produces copper. Scheduled to close late 1995. Milled ore from Lyons Lake, but this was set to cease in late 1992. Onstream Q4 1994 will also produce copper. Eventual capacity 35,000 tpy. Will also product ead. ‘py: Also produces copper Mine Balmat Pierrepont Various Mobrun Mines Selbaie Bathurst Grevet Polaris Sullivan Faro Sa Dena Hes Caribou Estrades Little River Major zinc mines in the Western world Ownership 1991 Zinc Corp of America 20 Zinc Corp of America 25 Others Total US Audrey Resources Billiton Metals Canada 50 Brunswick Mining & Smelting Corp (Noranday’ Cambior 0 Cominco 130 Cominco 115 Anvil Range 180 Cominco/Teck 40 Breakwater Resources 45 Breakwater Resources 18 Heath Steele Mines 55 Capacity (end year, thousand tpy) 1992 1993 1994 1995 1996 20 Remarks Also produces some lead. Fepansion to 20-25,000 tpy in 1995 when 1100 lens brought onstream. Also produces copper. Underground operations closed end-1993 but zinc putput to be maintained at earlier levels. Also produces lead and some copper. Expected onstream early 1996. Event 000 tual capacity 72, Also produces lead. tpy. Also produces lead. Also produces lead. Closed since April'1993. Due onstream H2 1995. Came onstream July 1991, Production suspended December 1992. Production suspended late 1990. Production suspended mid-1991, but reopening under consideration. Also produces some copper and lead. Temporarily closed July 1993. Set to reopen October 1994. Major zinc mines in the Western world Capacity (end year, thousand tpy) Location Mine Ownership 1991 1992 1993 1994 1995 1996 Remarks North America United States _ Leadville ASARCO (53.1%) 13 13 13 13 13 13 Also produces lead. Tennessee ASARCO (Tennessee . Mines Division) 50 50 50 50 50 50 Three mines. Sweetwater ASARCO 5 6 8 10 10 Production expected to rise slightly as lead output increases to compensate for shortfall from Magmont mine. West Fork ASARCO 9 10 12 15, 15 Magmont Cominco American 9 7 0 0 0 Closed six months ahead of schedule in May 1994. Red Dog Cominco American Also produces lead. Buick Doe Run Also ppoduce lead. Operating rate cut in 19! Brushy Creek, Fletcher, Viburnum Doe Run Rosiclare Ozark Mahoning Van Stone Equinox Resources 23, = and maintenance since early Greens Creek Greens Creek Also produces lead. Closed summer 1993 in face of depressed prices but expected to reopen once market improves. Lucky Friday Hecla Mining Gordonsville Jersey Miniere Zinc Elmwood, Cumberland Jefferson City Jersey Miniere Zinc Montana Tunnels Pegasus Gold APPENDIX IV - ZINC MINES According to our estimates (see table below) Western world zinc mine capacity fell by just over 150,000 tonnes between the end-1991 and end-1994. Production capacity actually rose in a number of these regions over the period but this was more than offset by declines in both North America and Western Europe. We believe that the worst is now over in both these regions and capacity in Western Europe should actually start to pick-up again in the next few years. Meanwhile, further expansions are envisaged in Latin America, Australasia and, to a lesser extent, Africa. By far the most significant addition to capacity in the next couple of years is MIM's McArthur River project in Australia. It is scheduled onstream this year and should reach its 160,000 tpy capacity in 1996. In Latin America capacity will be boosted by the start-up of the 60,000 tpy Iscay- Cruz mine in Peru in early 1996 and is already benefitting from the start-up of Mexico's Bismarck mine (50,000 tpy) in 1992, the 15,000 tpy Tizapa mine last year and this year sees the start-up of Comibol's 30,000 tpy Bolivar mine in Bolivia. A number of Western European mines have been forced to close in recent years, in Finland, France, Germany, Spain and Sweden, with no real replacement capacity in prospect. However, the region's capacity should start to pick-up again in the remainder of the decade. The 50-60,000 tpy Galmoy project in Ireland is set to come onstream next year and a sizeable expansion is planned at the Aznalcollar mine in Spain. Looking ahead to 1997 we may see the start-up of the even larger Lisheen mine (180,000 tpy) in Ireland. Western world zinc mine capacity (thousand tonnes contained metal per year, at year end) 1991 1992 1993 1994 1995 1996 North America 2,146 2,109 2,069 2,070 2,020 2,040 Western Europe 1,007 904 845 800 804 857 Latin America 127 1,447 1,442 1,490 1,532 Asia 523 540 543 505 510 Australasia 1,109 1,114 1,154 1,294 Africa 227 312 337 337 Western Total 6,310 6,570 Increment +29 +260 Billiton Metals Major lead refineries in the Western world Location Ownership Capacity (end year, thousand tpy) Process Remarks 1991 1992 1993 1994 1995 1996 Rouiba Societe Nationale Setif de Siderurgie 0 0 5 5 5 5 Morocco Qued-El-Heimer SFPZ 70 70 70 70 70 70 Nambia Tsumeb Tsumeb 75 75 75 75 75 75 South Africa _Isitebe } 5 5 5 5 5 5 Gemistar } Fry Metals Pty 24 24 24 24 24 24 Port Elizabeth ) 8 8 8 8 8 8 Zambia Kabwe ZCCM 10 10 10 10 10 10 Other Africa Various Various 10 10 10 10 10 10 Total Africa 207 207 212 212 212 212 Total Western re world 5872 5,842 5,802 5,796 5,858 5,908 Major lead refineries in the Western world Location Capacity (end year, thousand tpy) Process Remarks 1991 1992 1993 1994 1995 1996 South Korea Changhang } Korea Mining & Smelting Onsan } Keelung ACME Metal Enterprise Kaohsiung Thai Ming Ind. Co. Thailand Karnchanaburi Thai Lead Metal Co Sara Buri Bergsoe Metals Others Various Kayseri Cinko-Kursun Total Asia Australasia Australia Port Pirie Pasminco Melbourne } Australia Refined Sydney } Alloys New Zealand Various Various Total Australasia Major zinc mines in the Western world Capacity (end year, thousand tpy) Location Mine Ownership 1991 1992 1993 1994 1995 1996 Remarks Cobar Pasminco 20 20 0 0 0 0 Beltana/Aroona Pasminco 25 25 25 25 25 25 90 90 90 90 90 Ores became depleted. Elura Pasminco 90 Production cut back by two-thirds in 1991 because of low zinc prices, although actual output somewhat higher. Company now returning to s. capacity leve' Rosebe Pasminco Qutput fell following the shutdown of osenery Qué River in 1991. Compan to under- take exploration work and if successful will raise production. Broken Hill Pasminco Also produces lead. Capacity a ted ate to increase to 230,000 tpy b 997. North mine closed in early"1993. Total Australasia 1,109 1,139 1,109 1,114 1,154 1,294 El Abed Sonarem Kherzet-Youcef | Sonorem Guemessa Omnium Nord Afncain and BRPM Djebel Aouam SMDA Closed since May 1993 for economic reasons final decision on mine's future not expected until end-1994. Various Various inah ISCOR Also produces lead and 4 Rosh Pina Sco Future in doubt but as yet. mine Po apparently remains open. Major zinc mines in the Western world Capacity (end year, thousand tpy) Location Mine Ownership 1991 1992 1993 1994 1995 1996 Remarks South Africa Aggeneys Black Mountain 31 31 31 31 31 31 Also produces lead and copper. Mineral Development Maranda Maranda Mining 10 10 10 10 10 Onstream September 1992. so produces copper. Pering Shell South Africa 28 28 28 28 28 Tunisia Bougrine Government/ 0 0 15 40 40 Came onstream May 1994. Metall Mining Various Various 9 9 9 Kipushi Gecamines 70 70 70 Operating well below capacity. Kabwe Zambia Consolidated Copper Mines (ZCCM) 25 20 20 20 Closed in June 1994, but reopening mooted. Total Africa 227 Total Western world APPENDIX V - ZINC SMELTERS The table below shows that additions to Western world zinc smelting capacity have been pretty piecemeal in recent years. This is hardly surprising given the poor market conditions which have prevailed, discouraging producers from embarking on new projects. Last summer, for example, Pacific Zinc Corp (Nippon Mining, Mitsui and MIM) abandoned the 120,000 tpy Hachinohe project in Japan because of the strength of the yen and depressed metal prices. Doubt was also cast upon the Rayong project in Thailand, following Metallgesellschaft's withdrawal. However, Padaeng Industry (one of the partners in this project) reportedly has undertaken feasibility studies for a 120,000 tpy plant, while seeking potential partners. Nevertheless, the problems encountered have clearly delayed this project and even now its exact timing is by no means certain. The closure of Vieille Montagne's 120,000 tpy Overpelt smelter in Belgium and two smaller plants caused a reduction in Western European capacity in 1992, although expansions at Ruhrzink's Datteln plant and Asturiana de Zinc's Aviles operation helped to offset the greater part. Meanwhile, small additions to capacity in Italy and UK should mean that capacity returns to around end-1991 levels by the end of this year. Looking further ahead, the 170,000 tpy Nuuk smelter project in Greenland may be onstream by 1998. North American capacity has posted only modest increases in the 1990's so far with no major projects planned for the foreseeable future. However, it is good to see that the technical problems at Cominco's Trail operation have not proved to be insurmountable and furthermore 20,000 tpy should be added to its existing 270,000 capacity by the end of 1996. Meanwhile, the biggest additions to capacity within our time period look set to take place in Latin America, and, more significantly Brazil. However, a 40,000 tpy expansion is planned for the Torreon smelter in Mexico, subject to final approval and could be onstream by 1996/97. Key to the terms used to describe the various types of furnace: Electrolytic E Thermo-Electric-Fire-Refining ET-FR Imperial Smelting Furnace ISF Imperial Smelting Furnace-Fire-Refining ISF-FR Queneau/Schumann/Lurgi QSL Western world zinc smelting capacity (thousand tonnes per year, at year end) 1991 1992 1993 1994 North America 1,096 1,096 1,103 1,113 Western Europe 2,412 2,360 2,360 2,360 Latin America 600 633 633 641 Asia 1,370 1,406 1406 1436 Australasia 345 345 355 355 Africa 222 222 222 222 222 NSW Total 6,045 6,079 6,127 6,297 Increment +17 +48 +60 Billiton Metals Western world refined zinc production Total 2.438 million tonnes Total 3.971 million tonnes 21.5% Total 4.478 million tonnes Total 5.450 million tonnes ME North America «EJ Latin America Ef Australasia 2) Western Europe Asia Location Smelter North America United States Sauget Clarksville Bartlesville Valleyfield Trail Flin Flon Western Europe Austria Arnoldstein Major zinc smelters in the Western world Ownership Big River Group Jersey Miniere Zinc Zinc Corp of America Zinc Corp of America Total US Canadian Electrolytic Zinc (Noranda) Cominco Hudson Bay Mining & Smelting Kidd Creek Total Canada Total North America Bleiberger Bergwerks Capacity (end year, thousand tpy) 1991 1992 1993 1994 1995 1996 85 85 85 85 85 85 100 60 60 60 146 146 391 391 130 130 130 130 130 130 5. 75, 722, 722 722, 7a 1,096 1,103 1,113 1,113 1,133 1,096 20 0 0 0 0 0 Process Remarks Plant closed since September 1993 for maintenance and environmental retrofitting. Capacity expanded as a result of secondary feed. Technical problems in switchover to QSL. However, modernisation will expand capacity to 290,006 | tpy byend- 996. Modernisation programme completed 1993 to comply with new SO2 emission standards. Switchover to seconda production was originally planned but now appears io have closed. Major zinc smelters in the Western world Capacity (end year, thousand tpy) Location Smelter Ownership 1991 1992 1993 1994 1995 1996 Process Remarks Belgium Overpelt Vieille Montagne 120 0 0 0 0 0 E Plant closed early 1992, due to poor market. conditions. At one point operations were to transferred to Balen. Vieille Montagne Planned expansion to mepontedh y deferred, reportedly until 1995, but may hy be sibject to further delay in present environ- men Kokkola Outokumpu Oy Noyelles- Godault Metaleurop Auby Vieille Montagne Freiberg Saxonia Formerly East Germany. Primary production was to be halted in 1991 and plans were to be implem- ented for the treatment of f scrap instead, although P lant t appears to have béen closed. Duisburg Bermalins Metallhutten Nordenham Metaleurop Datteln Ruhrzink Output constrained to 90,000 tpy due to depressed market conditions since July 1994. Platinova Could be onstream by 1998. Eventual capacity of 170,000 tpy. Location Italy Netherlands Norway Portugal Spain UK Former | Yugoslavia Latin America Argentina Smelter Crotone Porto Vesme Porto Vesme Budel Eitrheim Lisbon Aviles Cartagena Avonmouth Kosovska Mitrovica Titov Veles Sabac Major zinc smelters in the Western world Ownership Pertusola Nuova Samim Nuova Samim Budelco Norzink yimica de Portugal ‘imigal) Asturiana de Zinc Espanola del Zinc MIM RMHK Olova I Cinka Trepca Topilnica Za Cink I Olova Zletovo Sour Hemijska Industrija Zorka Chemical Works Total Western Europe Sulfacid 1991 100 80 75 75 65 35 2,412: 35 Capacity (end year, thousand tpy) 1992 1993 1994 1995 1996 100 100 100 = 100 100 80 80 80 95 95 75 75 75 95 95 75 75 75 75 75 65 65 65 65 65 35 35 35 35 35 2,360 2360 2,360 2,410 2,410 35 35 35 35 35 Process E E E ISF-FR E Remarks Secured licenceto continue to store jarosite until 1998. Company Gecided to implemen cutback in 1995, PY Production constrained in recent years by unrest. Major zinc smelters in the Western world Capacity (end year, thousand tpy) Location Smelter Ownership 1991 1992 1993 1994 1995 1996 Process Remarks Brazil Itaguai Cia Mercantil e 42 42 42 50 60 60 ET-FR Plans to expand capacity Industrial Inga to 110,000 tpy by 1997 or possibly sooner. However, as yet a decision has not beén finalised. Votorantim Cia Minera de Metais Further expansion should be completed by October 1994 but will not be commissioned until October 1995. Juizde Fora Cia Paraibuna de Metais Plans to raise the plant's ‘apacity by 15,0 deferred for economic reasons. San Luis Potosi IMMSA Torreon Met-Mex Penoles Eventual expansion to 170,000 tpy awaiting approval. ‘Could be onstream by 1996/97. La Oroya Centromin Cajamarquilla Minero Peru Cominco successfully bid for plant. Capacity opecied to increase to 140,000 tpy over next four years Total Latin America Kerala Binani Zinc Expansion should be completed by Q1 1995. Chanderiya Hindustan Zinc Most of feed sourced from company's Rampura - Agucha’ mine. Location South Korea Major zinc smelters in the Western world Smelter Ownership 1991 Debari Hindustan Zinc 49 Vizakhapatnam Hindustan Zinc 30 Yazd Researched Engineering Co 0 for NonFerrous Metals lijima Akita Zinc 156 Hachinohe (Aomori) Akita Hachinohe Smelting Mitsubishi Metal Corp Mitsui Mining & Smelting Hikoshima Kamioka Mitsui Mining & Smelting Mikkaichi Nikko Zinc Sumiko ISP Co Toho Zinc Co Korea Zinc Co Young Poong Mining Capacity (end year, thousand tpy) 1992 1993 1994 1995 49 49 49 49 30 30 30 30 0 0 5 28 156 1996 49 30 28 Process Remarks pamper previously lanned fo Sxpan and caj acs ris Expansion? still under consideration. New cell house Commissioned April 1993. S000 tpy at less than for some years, ae at nearer 301 000 (py fom A pril 1995, hous h shortfall to be made ip by Toho Zinc. Location Thailand Turkey Australasia Australia Africa Algeria South Africa Zaire Zambia Smelter Tak Kayseri Port Pirie Risdon Cockle Creek Ghazaouet Vogelstruisbult Kolwezi Kabwe Major zinc smelters in the Western world Ownership Padaeng Industry Cinko-Kursun Metal Sanayii Total Asia Pasminco Pasminco Pasminco Total Australasia Societe Nationale de Siderurgie Zinc Corp of South Africa Gecamines ZCCM Total Africa Total Western world 1991 73 Capacity (end year, thousand tpy) 1992 73 1993 73 1994 73 1995 73 1996 73 Process E Remarks Plans under consideration to raise capacity to 90- 100,000 tpy. Tirhing yet to be confirmed. Expansion to 70,000 hab been mooted. ‘Py Expansion to 320,000 hab been delayed. ‘PY Modification work carried out in Q3 1993. Originally expected to close in 1992, when mine was scheduled to close as part of a rationalisation programme. However. ‘production has been constrained with ISF plant on care and maintenance. APPENDIX VI Lead and zinc smelters and refineries in the former Eastern bloc countries Major lead smelters in the former Eastern bloc Smelter Ownership Estimated capacity Remarks (end-1993, thousand tpy) Location Bulgaria Plovdiv Kardjali Miasteczko Copsa Mica Chimkent, Kazakhstan Ust- Kamenogorsk, Kazakhstan Leninogorsk, Kazakhstan Kraznoyarsk, Siberia Vladikavkaz, Siberia Rudnia Pristan, Siberia Konstantin- ovka Zhuzhou, Hunan Shuikoshan, Hunan Shenyang, Liaoning Shaoguan, Guangdong Baiyin, Gansu Others Nampo Mumpyong Lead and Zinc Company Lead-Zinc Complex Corp Huta Cynku "Miasteczko Slaskie" Sometra Copsa Mica Chimkent Lead Works Ust-Kamenogorsk Integrated Lead-Zinc Works na Electrozinc Works Dalpolimetall Production Association Konstantinovka State Plant Uhrzink na Korea Metals and Chemicals Export and Import Corp Korea Metals and Chemicals Export and Import Corp 45 30 Capacity to be expanded to 35,000 tpy in January 1995. Modernisation and expansion under consideration. New 50,000 tpy plant scheduled for start up in 1996/97. Closed in early 1994. Capacity expanded to 80,000 tpy in late 1994, Capacity since increased to 40,000 tpy. QSL plant. Came onstream in 1990. Capacities unavailable. Major lead refineries in the former Eastern bloc Smelter Ownership Estimated capacity Remarks (end-1993, thousand tpy) cites Amebatet es {de Plovdiv Lead and Zinc 45 Company Kardjali Lead-Zinc Complex 30 Corp Pribram Kovohute Pribram 20 Secondary plant. Miasteczko = Huta Cynku 65 "Miasteczko Slaskie" Copsa Mica Sometra Copsa Mica 45 Chimkent, Chimkent Lead Works 160 Kazakhstan Ust- Ust-Kamenogorsk 150 Modernisation and Kamenogorsk, Integrated Lead-Zinc expansion under Kazakhstan Works consideration. Leninogorsk, na 30 Kazakhstan Vladikavkaz, Electrozinc Works 40 Siberia Rudnia Dalpolimetall Production 20 Closed in early 1994. Pristan, Association Siberia Krasnoyarsk, Seconda: lant Siberia” scheduled for start-up in 1996/97. Konstantin- Konstantinovka ovka State Plant Uhrzink Others Various Secondary plants. Zhuzhou, na ee acity expanded to Hunan 0 tpy in late 1994. Shuikoshan, Hunan Shenyang, Liaoning Shaoguan, Ca acity since increased Guangdong to 40,000 tpy. Kunming, Yunnan Baiyin, Gansu Others Estimated as details of - capacities unavailable. Nampo Korea Metals and Chemicals Export and Import Corp Mumpyong Korea Metals and Chemicals Export and Import Corp Location Bulgaria Major zinc smelters in the former Eastern bloc Smelter Plovdiv Kardjali Miasteczko Krakow Copsa Mica Almalyk, Uzbekistan Belovo, West Siberia Chelyabinsk, Ural? Vladikavkaz, Ust- Kamenogorsk, Kazakhstan Leninogorsk, Kazakhstan Konstantin- ovka Zhuzhou, Hunan Sungpai, Hunan Huludao, Liaoning Shenyang, Liaoning Shaoguan, Guangdong Baiyin, Gansu Others Nampo Mumpyong Tanchon Kuang Yen Ownership Estimated capacity (end-1993, thousand tpy) KSM Dimiter Blogoev KSM Dimiter Blogoev Huta Miasteczko Slaskie Kambinat Gorniczo- Hutniczy "Boleslaw" Sometra Copsa Mica Almaylyk Mining & Metallurgical Combine Belovsky Zinc Works Chelyabinsk Zinc Refinery Electrozinc Works Ust-Kamenogorsk Integrated Lead-Zinc Works Leninogorsk, Polimetal Combine Konstantinovka State Plant na Korea Metals and Chemicals Export and Import Corp Korea Metals and Chemicals Export and Import Corp na na 60 30 52 Remarks Expansion to 85,000 tpy under consideration. Plant originally had 90,000 tpy capacity but one of furnaces closed in 1989. However, engineering work currently in progress to taise capacity to 80,000 tpy in 1996. Operated at well below capacity in recent years. Expansion bein, considered. 8 Expansion under consideration. Modernisation and expansion under consideration. Expansion to 130,000 t planned in 1994, PY Expansion to 330,000 tpy planned by end-1995. Capacity to be raised to 120,000 tpy in 1995/96. Estimated capacity as figures unavailable.