Could a Drop in Zinc Value Crumble Peru’s Mining Industry?

Peru has some impressive mines, including copper, silver, tin, gold, and zinc. Peru’s zinc mines provide the world with a steady supply of the fourth most common metal in use. With iron, aluminum, and copper at the forefront. Zinc prices achieved an unheard of 51% value increase in 2016, and continues to remain high so far in 2017. While it might be nice to hope that these numbers will continue to rise, it’s not likely that value of the Peru mining industry will continue to rise.

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There Was A Reason For The Spike In Value

2016 and 2017’s impressive value spike was a plain and simple matter of supply falling short of demand. Globally, there were several zinc mining roadblocks, including in Peru who currently maintains just over 7% of the world’s zinc. This made zinc a hot commodity, which was reflected in the price spike. Long-term projections show that by 2017 zinc’s current price of $2,724 per metric ton will drop to $2,264 per metric ton by 2020—some projections go as low as $1,900. While this is a sizeable revenue stream, it is a significant drop in value.

The Supply Demand Deficit Has Metal Manufactures Seeking Other Options

Any time a natural resource or precious metal becomes a commodity, manufactures will start exploring their options. For example, there have been some major advances in aluminum in the past few years. With aluminum being easy to recycle, easy to mine, and plentiful—scientists and product manufactures are finding ways to replace aluminum for zinc, iron, and copper. That being said zinc remains the metal of choice for galvanizing most metals as a rust and corrosion-proof coating. This means that even if another metal can be substituted, it may still require zinc. Not to mention those who will simply not forgo their desire or demand for zinc.

The Global Factor

Peru opened their mines to foreign investment in the mid-2000s. Anytime a country opens their resource trade to a foreign market, they must balance the pros and cons. While it is beneficial to have the mining innovation, additional financial investments, and global interest—it comes at a variable cost.

When the market drops, so do taxes and profit shares. Also, the more eager foreign mining companies are to renegotiate. While the Peru mining industry can continue to expect an ongoing income from zinc, budgeting and projections is all but impossible to predict with accuracy. In other words, the long-term profits would be less if Peru had never opened to foreign investment, but when a drop in value occurs—the difference become much more significant.

Even if zinc value continues to drop, and even if some investors or mining companies move on, the Peru mining industry will remain strong. With over 7% of the globes zinc, and many other in-demand metals to mine—Peru can continue to count on mining as being a long-term—if fluctuating profit center.

American Chamber of Commerce of PeruOverseas Automotive Council Petroleum Equipment Institute
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