Article from Sydney Morning Herald:Oversupply puts zinc under...

Article from Sydney Morning Herald:

Oversupply puts zinc under pressure

Jamie Freed
June 9, 2008

STEELMAKING materials such as iron ore, coking coal and manganese have hit the headlines this year in light of record prices due to a boom in demand from the industrialising economies of China and India.

What has received less attention is the fall in the price of other steelmaking materials - notably zinc and nickel.

Zinc is a key ingredient in galvanised steel that helps limit rust and corrosion. Galvanised steel is used in many high-demand products, such as roofing, handrails, consumer appliances, metal pails and automotive body parts.

Despite the high demand for steel, the zinc price has more than halved in the past year because the commodity is one of those rare metals in oversupply.

Although China imports huge amounts of iron ore and alumina to make up for its lack of domestic supply, it is a net exporter of zinc. Supply is also expanding elsewhere in the world, and the International Lead and Zinc Study Group predicts that production of refined zinc metal will rise by 6.4 per cent this year.

Despite the gloomy picture - and the recent fall in the zinc price below $US1 a pound for the first time in three years - the world's largest zinc producers such as Xstrata, Teck Cominco and Zinifex are confident prices will bounce back.

Merrill Lynch analysts agreed. They say the current zinc price is low enough to start the closure of high-cost mines and to delay the financing and start-up of new mines. In the meantime, Goldman Sachs JBWere have predicted that the high-cost Broken Hill miner Perilya will swing to a loss.