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The zinc market

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Zinc is the fourth most widely used metal, after iron, aluminium and copper. Zinc is used in a variety of ways, including the production of alloys used in the motor and construction industries. It is also used in the production of chemicals, some of which are used to galvanise steel, which stops it rusting. Because of the global downturn, it is estimated that global production in 2009 will be 2.65m metric tonnes, compared with demand of 2.41m metric tonnes. The USA is the world’s largest consumer, but China is catching up rapidly. Back in 2007, when the world economy was growing strongly, zinc prices on the London Metal Exchange, averaged $4,200 per tonne, but by 2009 this price had fallen to $1,400 per tonne. Despite this fall in price, supply onto the market was slow to adjust, with over production continuing.  In an attempt to help stabilise prices, the Chinese government announced in 2009 plans to control supply by buying up stocks.

Zinc production and use creates a number of harmful by-products, including sulphur dioxide from zinc smelting, and hazardous waste which must be safely disposed of. Zinc production is also heavily reliant on energy from fossil fuels, which contributes to carbon emissions. Subsidies may encourage zinc producers to switch to low energy technology. Other strategies that could help encourage the reduction of carbon emissions include carbon offsetting, a carbon tax, and carbon trading, such as the European Carbon trading scheme. A tax on hazardous waste could also provide an incentive to find alternative ways to extract zinc from the earth.

Carbon trading is often described as a ‘cap and trade’ system. Emission limits (caps) are set for producers, and if these limits are exceeded, the polluter must buy permits to pollute in the carbon market. Other producers that emit below their limit can sell their surplus permits on the carbon market.  Hence, an incentive is created to reduce carbon emissions.

The world’s largest zinc producing firm, the London-based Belgian-owned company Nyrstar, has mining operations around the world, including the USA and Australia.  A representative of Nyrstar told Fox News recently that any type of carbon tax could not be passed on to consumers, and that the company would have to bear the cost itself.  Nyrstar are also worried that tough anti-pollution policy by the Australian government would cost the company many jobs, which would go to China, where pollution control is a low priority.

(Sources: Fox News; ILZSG; Metalspace.com; Basemetals.com; Reuters International)
  1. Calculate the % fall in the price of zinc from 2007 to 2009. (2)

  2. Using a diagram, explain why zinc prices fell between 2007 and 2009. (5)

  3. With reference to the data, comment on the price elasticity of supply of zinc. (7)

  4. Analyse the impact of falling zinc price on producers and consumers. (6)

  5. Evaluate the Chinese government’s plans to control supply by buying up stocks. (8)

  6. Use a diagram to explain how a subsidy on low energy technology might encourage its use. (5)

  7. Use a diagram to illustrate the effect of pollution on the social costs of zinc production. (5)

  8. Evaluate the use of carbon taxes and carbon trading as a means of reducing the external cost of zinc production. (12)

50 marks

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