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April 4, 2013 8:39 pm
Nyrstar, the world’s largest zinc producer, has fired the starting gun on one of the most hotly-anticipated contests in the metals trading industry in years, inviting offers from companies to take Glencore’s place as the buyer of its metal in Europe.
Glencore agreed to terminate its contract to buy a large chunk of Nyrstar’s European zinc output in order to win EU approval for its $76bn tie-up with Xstrata.
Nyrstar sent requests for proposals to buy its European zinc to interested parties late last week, according to several people with direct knowledge of the matter. Initial proposals are due by April 19, one of the people said.
Securing the contract offers one of the best opportunities to gain market share in metals in years, traders say. The deal covers about 350,000 tonnes of annual production in Europe, worth about $650m at current prices and more than an eighth of the freely-traded market that is contested by Glencore and its rivals.
The zinc market is traditionally a Glencore stronghold, with the trading house controlling 60 per cent of the freely-traded market, according to its listing prospectus. After its merger with Xstrata, Glencore would be the world’s largest miner, smelter and trader of zinc, used mainly to galvanise steel.
Candidates to win the contract include Trafigura, the second-largest metals trader and Glencore’s arch-rival, Traxys, a private equity-backed US trading house, Louis Dreyfus Commodities, MRI Trading and Noble Group as well as several banks that have expressed an interest, according to people familiar with the situation.
Nyrstar may also decide to sell its metal direct to customers, cutting out the middle man, although that would incur significant working capital costs.
Trafigura is the obvious candidate to take on the contract. It has the second-largest zinc book after Glencore, and was upset to have been snubbed when Nyrstar first agreed the deal with Glencore in 2008, according to people familiar with the matter. Claude Dauphin, Trafigura boss, ran the lead and zinc department of Glencore’s predecessor Marc Rich + Co in the 1980s before founding his own company.
Nyrstar’s move to begin the process of finding a new buyer for the metal is the latest sign that Glencore expects to receive approval imminently from Chinese antitrust regulators, who have delayed the Xstrata deal’s completion by several months.
Earlier this week the trading house said it believed its discussions with Beijing were “in their final stages” as it delayed the deal for a fifth time to May 2 from April 16.
Roland Junck, chief executive of Nyrstar, told investors during a conference call in February that the company would only begin the process of looking for a replacement for Glencore once the deal with Xstrata was done.
“You can only marry if you have divorced first,” he said. “Once divorced we will be free to organise a beauty contest which will allow us then to choose . . . the nicest bride.” The move to seek offers suggest the divorce is near.
Nyrstar and Glencore declined to comment.
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