Zinc May Outperform Other Metals on China Demand, Scotia Says By...

Zinc May Outperform Other Metals on China Demand, Scotia Says

By Xiao Yu

July 17 (Bloomberg) -- Zinc, used to galvanize steel, may perform better than other base metals in the ``near'' term as falling Chinese exports and rising steel production will boost prices, said Scotia Capital Inc.

China became a net buyer of refined zinc in April and May, depleting global inventories. Without Chinese exports, the rest of the world would face a shortage of the metal, analysts Na Liu and Eric Yan said in a weekly note e-mailed to Bloomberg today.

China's demand for zinc, which helped to boost prices more than fourfold in the past five years, is increasing as economic growth averaging 9.5 percent a year in the past decade has made cars and appliances more affordable. General Motors Corp. and its rivals sold 25 percent more vehicles in China last year.

``In our view, fast-increasing galvanized steel production, the largest zinc consumer, will help domestic zinc prices find a higher floor,'' said the analysts with the Toronto-based investment bank. They didn't provide a price forecast.

Baosteel Group Corp., China's biggest steelmaker, said June 28 it will double zinc purchases by 2012 as it raises galvanized steel output. The company will need 140,000 tons of zinc metals, including refined zinc and alloys, in 2012, up from an estimated 70,000 tons this year, Chen Xiangming, an official in charge of alloy developing and trading, said.

China's production of galvanized steel more than doubled in May from a year earlier and rose 59 percent from April to 2.03 million tons, Scotia Capital said.

Chinese imports of zinc concentrates, the raw material used to make refined zinc, almost tripled as zinc producers increased production 22 percent in the first five months. Chinese smelters are relying on overseas concentrates as domestic mine production only rose 9.7 percent, said the report.

Still, there are concerns about potential increase of zinc supplies, the bank said. The spot treatment and refining charge, known as TC/RC, has risen to $300 a metric ton from a low of $20 a ton in the first half of 2006, indicating the global zinc concentrate market has eased.

Zinc futures for delivery in three months on the London Metal Exchange traded at $3,530 a ton at 1:25 p.m. local time.