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Zinc Glut Diminishing as China Cuts Most Since ’04: Commodities



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Chinese zinc smelters, the world’s biggest suppliers, are cutting the most production in at least nine years after prices tumbled into a bear market, diminishing a glut that began in 2007.

Output of the metal used to rust-proof steel fell 6.8 percent in China in the first seven months, according to Beijing Antaike Information Development Co., which has researched metals for two decades. The nation accounts for 40 percent of global supply, the Lisbon-based International Lead & Zinc Study Group estimates. Prices will average $2,045 a metric ton in the fourth quarter, 9.9 percent more than the average since July 1, based on the median of 12 analyst estimates compiled by Bloomberg.





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A factory worker looks over machines processing silver, zinc, and lead ore in Jiyuan, Henan Province, China. Photographer: Keith Bedford/Bloomberg
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The metal traded below the $2,526 a ton that Antaike estimates 79 percent of Chinese smelting output needs to break even since August 2011. Output has exceeded demand since 2007 after record prices in 2006 spurred more supply, driving London Metal Exchange-monitored stockpiles above 1 million tons for the first time ever in July. The glut is now diminishing at a time when steelmakers, the biggest consumers, are projected to expand production to an all-time high this year and next.

“Zinc smelters in China have been suffering a lot for quite a long time,” said Gayle Berry, the analyst at Barclays Plc in London, who correctly predicted in February that supplies would tighten and prices rebound later in the year. “The Chinese market has addressed the surplus and the supply cuts have helped to provide a floor to prices.”

Bear Market

The metal fell 20 percent in five months to June 27, the common definition of a bear market. Zinc rallied 16 percent to $2,033 since then, leaving it 10 percent higher this year and the best-performing industrial metal. The Standard & Poor’s GSCI gauge of 24 commodities added 6.2 percent and the MSCI All- Country World Index of equities advanced 11 percent. Treasuries returned 2 percent, a Bank of America Corp. index shows.

The supply surplus will contract 26 percent to 230,000 tons next year, the lowest since 2008, Morgan Stanley estimates. Barclays is predicting a 13 percent decline to 231,000 tons and Bank of America sees a shortfall of 141,000 tons. Standard Bank Plc reduced its projection for this year’s glut to 249,000 tons from 539,000 tons estimated in February.

Inventories tracked by the LME retreated 4.9 percent in August, the first monthly decline since November, and orders to withdraw metal from warehouses almost tripled since June 27, bourse data show. Stockpiles monitored by the Shanghai Futures Exchange fell 23 percent since mid-March