zinc outlook info obtained from xstrata plc

http://www.xstrata.com/assets/pdf/xta-ir2008_en.pdf

Note that Xstrata anticipates a deficit of Zinc metal from 2010.



Zinc
Supply of refined zinc grew at a faster pace than global demand during the first half of 2008, increasing LME
warehouse zinc stocks to 153,200 tonnes at the end of June. Nonetheless, stock levels remain low and represent
less than five days of global consumption. Despite inflation and credit concerns, global zinc demand rose by 2%
year-on-year, supported by economic growth in developing countries.

Zinc consumption remained steady in Eastern Europe, but softened in Western Europe, impacted by rising
inflation, weaker employment, credit conditions and the strengthening of the Euro. In North America, zinc
demand remained weak, mainly due to subdued production from the automotive and construction sectors,
although economic indicators point to a recovery in the manufacturing sector later in the year. Chinese zinc
consumption continues to expand rapidly in response to robust growth in the galvanised sheet sector, fuelled by
major infrastructure projects, including the construction of new highways, manufacturing facilities and power
generation capacity.

Global refined zinc production increased by over 5% year-on-year in the first half due to an increase in Asian
production capacity. Contrary to last year, natural disasters constrained supply growth from China, resulting in a continuation of its net import position for refined zinc.

The zinc concentrate market eased during the first half of the year due to increased mine supply from China,
Peru, Bolivia, Australia, and the US. By the end of June, most miners and smelters had agreed annual zinc
concentrate contract terms for 2008. Benchmark treatment charges were agreed at $300 per tonne on a $2,000
per tonne zinc price basis compared to $300 per tonne on a $3,500 basis in the prior year.

Average LME zinc prices fell to $2,269 per tonne in the first half of 2008, compared to an average of $3,561 per
tonne in the same period of last year and are currently at or below the marginal cost of production. Although
the market is expected to continue to be in supply surplus in the second half of the year, reported stocks of
refined zinc are still at very low levels and any further mine closures due to depressed prices could lead to an
improvement in zinc prices following the sharp correction experienced in the first half of the year. The outlook
for the medium term is stronger, with zinc concentrates likely to move towards a more balanced market from
2009 and a deficit of zinc metal from 2010. The potential for China to increase imports, together with the
potential for additional closures or suspensions, could present additional support to prices.