zinc prices may drop 45pc next year

Zinc prices may drop 45% next year

M.R. Subramani

Chennai, Dec. 30 Global zinc prices are forecast to drop by 45 per cent next year and average around $1,780 a tonne. The projection, made by Australia’s independent government economic research agency Abare, has been made on the expectations that new supply will come on line and stocks will recover as production exceeds consumption.

Stocks are expected to rise from an equivalent of 2.1 weeks of consumption at the end of 2007 to around 3.1 weeks by the end of next year. “There is some upside risk to the price assessment, however, in that new industry standards in China have the potential to reduce production of refined zinc, and result in a smaller rise in the end of year stocks,” Abare said in its outlook.
Economic growth

Zinc consumption, which rose three per cent this year, is projected to rise by the same margin next year to 11.6 million tonnes (mt). This is based on the premise that continued economic growth in China and other developing countries will support the offtake.

This year, substitution of galvanised steel, which is zinc coated, for stainless steel that contains nickel– whose price zoomed to a record this year– led to increased consumption of Zinc. Besides, demand for galvanised steel and zinc-based alloys remained strong.

“Growth in vehicle production in China and India is expected to remain strong, resulting in increased demand for galvanised steel sheet used in the bodies of cars and trucks (in 2008). In the US, rising demand for galvanised steel in non-housing construction is expected to offset lower demand from residential construction associated with the downturn in the housing market,” Abare said.
Production

World zinc mine production was 7.9 mt in the first eight months of 2007. Encouraged by high prices since 2006, production is increasing in Peru and the US, where new mines have commenced operations.

Mines, which had previously been closed, had also resumed operations. Production has increased in China also, though the month-to-month output has varied. For this year, zinc mine production is estimated to be 11.2 mt, up seven per cent over last year. In 2008, production is forecast to increase by another 3 per cent to 11.6 mt.

“A number of new mines are expected to commence production during the year, including Satkamo in Finland, which has a capacity of 60,000 tonnes a year, and Penasquito in Mexico with a capacity of 1.35-lakh tonnes.

Refined zinc production is estimated to be 11.2 mt this year, up five per cent over last year. Next year, it is projected to rise five per cent to 11.8 mt.

“A risk to refined zinc production forecasts for 2008 is China’s efforts to prevent over-investment in power, resources and pollution intensive industries. China’s National Development and Reform Commission has set out a number of entrance standards aimed at improving the performance of its domestic lead and zinc industries and has asked the provincial governments to phase out lead and zinc facilities that do not meet the benchmarks,” Abare said.

Zinc price, which had run to a record $4,260 a tonne earlier this year, was quoted at $2,440 during the weekend.