zinc oversold

RBC analysts also predicted zinc inventory surpluses this year and next, putting downward pressure on prices. However, "renewed deficits in 2010 and beyond should again result in inventories being drawn down towards frictional levels, with the result that prices could reach new cyclical highs in 2011 and 2012," they said.

As of May 14, zinc inventories stood at 4.9 weeks of consumption, still below the critical level of six weeks, according to analysts Fraser Phillips and Adam Schatzker, and associates Robin Kozar and Jamie Riff.

In their analysis, RBC noted that zinc prices underperformed other base metals in 2007, adding "we believe they were oversold relative to the fundamentals. Production disruptions in China have led to a rebound in prices in Q108, and a further increase is possible.

"That being said, the modest surpluses we are forecasting should result in lower annual average prices in 2008 and 2009 versus last year. We forecast an average price of $1.15/lb in 2008, declining to $1.10/lb in 2008. However, with the market expected to move back into deficit, we expect prices to increase to $1.40 in 2010, and $1.80 in 2011 and 2012.

I really get the feeling zinc is being shorted along with lead at the moment. Even after the aftermat of the chinese eartuake not much has come out about there Zinc production.