zinc crash ... here we go, page-54

Zinc, Tin Prices to Rise in 2007 on Short Supply, Antaike Says

By Chia-Peck Wong

Dec. 22 (Bloomberg) -- Zinc and tin, the second and third- best performing base metals this year, may rise further in 2007 as supplies continue to lag demand, Beijing Antaike Information Development Co. said.

High labor and equipment costs, especially from zinc mines outside China, may delay the start of new projects, crimping the development of supply, Feng Juncong, a senior analyst at Antaike, said in an interview yesterday.

The price of zinc, used to galvanize steel, has more than doubled this year, touching a record last month, as China produces more of the alloy. Tin prices have surged 69 percent amid concerns supply from Indonesia, the world's second-biggest producer, won't match demand.

``We may see zinc for cash delivery reach $5,000 a ton in the first quarter of next year,'' said Feng, who has been tracking the industry for 12 years, and correctly forecast in August that the metal may rise further this quarter.

Zinc for cash delivery on the London Metal Exchange, the world's biggest such bourse, may average $3,580 a metric ton in 2007, she said. The metal, which rose to an intraday record of $4,658 a ton on Nov. 27, has averaged $3,242 so far this year, more than double the level in 2005.

Production Deficit

Usage exceeded output by 320,000 metric tons in the first 10 months of 2006, compared with 314,000 tons a year earlier, the Lisbon-based International Lead and Zinc Study Group said Dec. 13. Demand in China, the world's biggest zinc user and maker, rose 4 percent to 2.55 million tons, the group said.

More production problems may also surface next year as plants could break down as miners attempt to operate equipment at full capacity to benefit from rising prices, said Feng.

The price of tin, used mostly in soldering electronic components, may also continue to rise next year amid potential supply shortages from China and Indonesia, Cui Lin, Antaike's tin analyst, said in an interview yesterday.

Cash prices of tin in London may average $9,200 a ton next year, she said. The metal has surged 71 percent this year, averaging $8,682.40. Tin for delivery in three months, the most actively traded, surged to $11,250 a ton on Dec. 11, the highest in at least 17 years.

``There may be more production problems next year,'' she said.

Indonesia, the world's biggest tin-producing country after China, shut 20 smelters in October to investigate allegations they used illegally mined ore. The closures have removed as much as 7,000 tons of refined tin from the global market, London- based metals consulting company CRU said.

Output from China may also fall as the country clamps down on small-scale miners that use outdated technology which pollutes the environment, Cui said.

China produced 115,000 tons, or 41 percent of the world's mined tin last year, according to the U.S. Geological Survey.

Antaike is a research affiliate of the China Nonferrous Metals Industry Association, and advises the government on industry policies.

To contact the reporter on this story: Chia-Peck Wong in Singapore at [email protected]

Last Updated: December 21, 2006 21:11 EST