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zinc may be next commodity star no sh*t sherlock

there are several articles with the same heading out today

Zinc may be next commodity star
report: Price could rise 33%: But not everyone is bullish, with fears of possible oversupply
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Drew Hasselback, Financial Post
Published: Friday, October 13, 2006

Zinc is emerging as the next hot commodity, with one report forecasting the metal will rise almost 33% to a new record price by next year.

Standard Bank PLC this week published a report predicting zinc could rise to a record US$2.25 a pound at some point during the next 12 months. Zinc currently sells for about US$1.71 a pound, not far below the previous record of US$1.81 a pound set last May.

Zinc is coated on steel to help resist corrosion in a process known as galvanization. Booming economic growth in China and India is generating strong demand for galvanized steel, and this has bolstered zinc prices.

The global market for zinc is currently in deficit as demand outstrips available mine and refinery supply. The question is whether that supply deficit will stretch into next year and beyond.

Standard Bank says zinc has the best fundamentals of any commodity traded on the London Metal Exchange.

"Massive expansions in production capacity of galvanized steel in Asia and major infrastructure projects in China will underpin strong growth in zinc consumption," the bank said.

But not every analyst is bullish about the market. Some believe enough big new mines will enter production in 2007 and 2008 to bring the market into balance.

Stephen Briggs, analyst with Societe Generale, gave a presentation in London this week in which he predicted a "big turn" in the market. He said miners plan to increase the existing supply by 20% during 2007 and 2008. As a result, he said, the zinc price will drop within 18 months.

Larry Smith, analyst with Blackmont Capital in Toronto, estimates that zinc demand will exceed supply by 350,000 tonnes this year. The global market for zinc is about 11 million tonnes.

Despite the anticipated shortfall, Mr. Smith thinks the zinc price has already peaked.

"My view is that just because we're going to have deficits doesn't mean prices have to go higher," Mr. Smith said. "I'm confident that we haven't yet seen the peak in equities, even though we might have seen the peak in commodities."

The 13-member S&P/TSX mining sub-index has risen about 50% over the past 12 months. Mr. Smith thinks there's room for mining equities to rise about 25% to 30% over the next 12 months, relative to today's prices.

Several new zinc projects are in the works. U.S.-based Apex Silver is expected to start production at its much anticipated San Cristobal zinc-lead-silver mine in Bolivia next year. The project will add 180,000 tonnes a year to supply.

Vancouver-based Teck Cominco Ltd., the world's second-largest zinc producer after Switzerland-based Xstrata PLC, is expected to start its Lennard Shelf zinc-lead mine in Western Australia in the first quarter of next year. The mine will produce 75,000 tonnes a year.

The robust zinc market has helped increase interest in the intermediate Canadian mining sector.

Lundin Mining Corp. meets next Thursday to formalize a proposed US$3-billion merger with EuroZinc Mining Corp.