inl to recieve full earning from helleyer in a few years so double that projection from mbl at least
Zinc remains a solid investment as China's demand grows nearly 10 per cent July 4, 2007 - 17:03
By: LAURA BOBAK
TORONTO (CP) - Despite fears that China may return to its past as a net exporter of zinc, the metal is still a solid bet for investors looking to cash in on the growing demand for the metal used to prevent steel from corrosion, experts say.
China's demand for slab zinc is expected to grow 9.5 per cent this year and about nine per cent next year, said Patricia Mohr, a vice-president of economics with Scotiabank. In 2006, it was up 11 per cent.
"These are very strong growth numbers in terms of demand," said Mohr, noting the growth is fuelled by the demand for galvanized steel.
Mohr said investors looking to invest in zinc should consider waiting until late summer, when stock prices will drop somewhat in response to summer manufacturing slowdowns in Europe and elsewhere. Stock prices should then increase in the fall as demand surges, she said.
China has a massive smelter capacity, but a shortage of zinc concentrate, so it has been importing the concentrate in massive quantities to produce the refined metal. When it produces a surplus, it exports it, which has some concerned about downward pressure on the price.
Canada's Teck Cominco Ltd. (TSX:TCK.B) is a major exporter of zinc concentrate, culled from its Red Dog mine in Alaska and shipped to China.
George Topping, a base metals analyst with Blackmont Capital in Toronto, agreed with Mohr that the metal's fundamentals are strong.
"I'm still very bullish on most commodities, and I think zinc will still continue to do very well," Topping said.
Although prices have dropped slightly from highs last year, "it's important not to let volatility shake you out of the markets," he said, adding he believes the zinc market will remain strong for at least three to five years.
Topping said zinc demand will remain steady as it's used to make products needing by increasingly affluent consumers in Asia. They're buying big-ticket items which use lots of stainless steel, including cars, fridges and dishwashers.
Investors who want to cash in on zinc could consider HudBay Minerals (TSX:HBM), Breakwater Resources (TSX:BWR), as well as Inmet Mining, (TSX:IMN), which is primarily a copper producer but also makes zinc. Lundin Mining (TSX:LUN) is also another Canadian miner with exposure to zinc.
But Canada's biggest zinc concentrate producer by far is Teck Cominco, which is trying to expand its reach into the copper market through its proposed takeover of Aur Resources Inc. (TSX:AUR) at $41 per share.
The generous offer, which is not expected to be matched, will significantly boost Teck's copper production, and could indicate company wants to continue to diversify to protect itself from a drop in the price of the metal used to galvanize steel.
Investor concerns about Chinese exports of refined zinc could impact the stock prices of Teck and other companies with exposure to zinc.
HudBay, a Manitoba-based company, is Canada's second biggest zinc producer after Teck. It also produces copper, gold and silver from its four operating mines, and is considered to be a takeover target by some observers of the rapidly consolidating metals industry.
Zinc, a bluish-gray metal, has many uses, including the creation of alloys such as brass, and the galvanization of steel to prevent corrosion.
Analysts said in May the 76-year-old company represents a good buy for investors looking to get into the market for zinc, now selling for about US$1.57 per pound on the London Metal Exchange.
"HudBay Minerals provides exposure to improving zinc market fundamentals," John Redstone and John Hughes of Desjardins Securities wrote in their May 28 weekly metals and mining research report to investors. Hughes said HudBay was a top pick, with above average risk, and set his target price to $28.50 per share in May. He said the company has a strong balance sheet, due to "conservative fiscal management" and historically high copper and zinc prices.
In the July 3 metals report, the Desjardins analysts forecast world consumption of refined zinc to increase 3.3 per cent this year to 11.7 million tonnes. In 2008, they predict consumption to pick up six per cent to 12.4 million tonnes. They expect world zinc output of 11.6 million tonnes, rising to 12.4 million in 2008.
Adam Schatzker, of RBC Dominion Securities, forecast an increase in spot zinc prices to $1.84 this year in a May 14 note to investors.
The world's top five zinc producers accounted for 29.5 per cent of world mine production in 2006. The companies in 2006 (ranked by their share of world mine output):
1. Xstrata (8.3 per cent)
2. Teck Cominco Ltd. (6 per cent)
3. Glencore (5.7 per cent)
4. Zinifex (5.1 per cent)
5. Hindustan Zinc (4.4 per cent)
Source: Scotiabank Economics
financial post Copper, zinc, nickel and lead markets remain tight After forecasting strong metal prices for the second half of 2007 and 2008 in early June due to growth in China, an improving U.S. economy and continued economic growth in Europe, Octagon Capital analyst Hendrik Visagie is updating his projections.
For copper, which averaged US$3.08 per pound in the first half of 2007, he forecasted average prices would climb to US$3.58 in the second half of the year and US$3 in 2008. Mr. Visagie continues to think prices will be above US$3 in 2008 due to tightness in the market.
He has adjusted upward his lead price forecast, saying “it has become apparent how severe the lead shortage is in China.”
Lead prices are now expected to average US$1.25 per pound in the second half of 2007, up from US90¢ in the first half, and US$1 in 2008.
Despite a 45% decline in nickel prices in the past month and inventories that have more than doubled, Mr. Visagie notes that it remains in relatively tight supply. A seasonal slowdown in the stainless steel business could be one reason for weaker nickel demand, but he thinks business should be busier later this year.
Mr. Visagie expects nickel prices will average US$15 per pound in the second half of 2007 and US$14 in 2008.
Finally, he thinks average zinc prices will climb to US$1.95 in the second half of the year and US$1.85 in 2008.
“We are maintaining our view that the zinc market is tight, and we believe that de-stocking and the weak U.S. economy has resulted in zinc under-performing in the H1/07,” Mr. Visagie said in a research note.
bloombergs May 10 (Bloomberg) -- China, the world's biggest producer and consumer of zinc, may slash exports of the metal this quarter, supporting near-record prices, traders and analysts, including Feng Juncong of Beijing Antaike Information Development Co., said.
Net exports of refined zinc may drop as much as 45 percent to between 50,000 and 60,000 metric tons in the three months ending in June, as domestic demand is growing and the government is discouraging overseas sales, Feng said by phone today. Net zinc exports were 90,260 tons in the first quarter.
A decline in record overseas sales by China, which consumes a third of the world's zinc, may drive global prices toward last November's record of $4,580 a ton or even higher, said Yang Yinghui, a trader at Cofco Futures Co. from Beijing. China is trying to curb metal exports to reduce its trade surplus and rein in capacity growth in energy-intensive and polluting industries.
``The sharp increase in zinc exports is a concern, and the government will probably remove the tax rebate to slow export growth,'' Zhou Guobao, head of the zinc and lead department of China's Nonferrous Metals Industry Association, said by phone May 8. He didn't say when the tax rebate might be scrapped.
China, the world's fastest-growing major economy, became a net exporter of zinc in 2006 for the first time in three years, reducing global supply concern that pushed prices to records. Zinc is used to galvanize steel, helping to prevent rusting of products such as nails, house frames and car parts.
Exports Surged
China's exports of zinc rose more than fourfold in the first quarter from a year ago to 153,507 tons, while imports fell 51 percent to 63,247 tons, customs data showed. Singapore, Italy and the U.S. were the biggest buyers, according to the data.
Exports soared after prices in London rose to a record, making shipments profitable for Chinese producers such as Hunan Zhuye Torch Metals Co., China's biggest zinc producer. Production growth in China also contributed the surge in exports.
China is now in the peak demand period for construction and prices of the metal are rising. The benchmark London Metal Exchange zinc price, which rose 31 percent in the past three months on dwindling global stockpiles, reached $4,170 on May 4, the highest since Jan. 3.
The contract for delivery in three months fell $25, or 0.6 percent, to $4,065 a ton at 4:30 p.m. Shanghai time today.
Zinc for July delivery on the Shanghai Futures Exchange, which has risen 19 percent since the contract was introduced on March 27, closed 0.5 percent higher at 34,710 yuan ($4,511) a ton.
Prices Rise
Global prices may ``be surprisingly good'' this month driven by increased investment by funds and slowing Chinese exports, said Cofco's Yang, who forecasts zinc rising above $4,600 a ton. Some other traders, including Li Ling of Star Futures Co., echoed such price estimates.
``We expect to see Chinese export orders drop significantly from May,'' said Shen Haihua, vice president at Maike Futures Co. by phone from Shanghai. Zinc prices may hover around $4,300 to $4,500 this month, he said.
The government, which wants to ensure that domestic supplies are sufficient to meet rising demand, may reduce or cancel rebates on the 17 percent value-added tax for some metal exports.
It may remove the 5 percent tax rebate on exports of zinc of 99.995 percent purity, which can be delivered on the London Metal Exchange, in the first half of this year, Antaike's Feng said at a seminar in Shanghai April 5. Tax rebates for some steel products were removed last month.
``Fundamentals don't seem to support zinc rising to a record, but other metals such as copper, have risen significantly, and the investment funds' enthusiasm hasn't weakened, so I couldn't rule out the possibility that zinc will rise to a record this quarter,'' Feng said.
``Net exports of refined metal from China have slowed and we remain unconvinced that there are substantial inventories of metal that could be used to boost exports,'' Robin Bhar, an analyst at UBS AG, said in a research note on May 4.
Global stockpiles of zinc in warehouses monitored by the London Metal Exchange have fallen to 86,700 tons, the lowest since Dec. 15, the exchange said today.
To contact the reporter for this story: Xiao Yu in Beijing at [email protected] .
Last Updated: May 10, 2007 04:31 EDT
SDV Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
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