November 17, 2022

Nyrstar will resume operations at its Budel, Netherlands-based zinc smelter this month, according to company statements from late last week. Due to unprofitability, the smelter was placed on care and maintenance approximately two months ago. Since the start of the Russia-Ukraine conflict, Russia has decreased natural gas flows to Europe. This drop in natural gas flows has led to soaring natural gas (TTF) and electricity prices across the continent. As zinc smelting is electricity-intensive, soaring electricity costs have forced producers such as Nyrstar to curtail production fully or partially. However, AEGIS notes that both European natural gas and electricity prices have fallen tremendously since the summer highs which is likely why Nyrstar is able to restart operations. Nyrstar’s Budel, Netherlands smelter normally has an annual capacity of 315,000 mt, making it one of Europe’s largest zinc smelters. (Sources: Reuters, Bloomberg)

Zinc prices at the LME are down over 15% this year, with the last trade at $2,998/mt (7:00 AM CST). Also, zinc’s forward curve is currently quite backwardated. This allows a zinc end-user such as a galvanizer to hedge future purchases at prices lower than the current spot market. Buying swaps or call options are viable strategies, as either would establish a maximum zinc price. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please note that zinc options have lower liquidity than swaps. Please contact AEGIS for specific strategies that fit your operations. (11/17/2022)

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