TIMES NEWS NETWORK[ MONDAY, JANUARY 08, 2007 12:56:44 AM] Zinc...

TIMES NEWS NETWORK[ MONDAY, JANUARY 08, 2007 12:56:44 AM]

Zinc prices have fallen from the peak of $4,600 per tonne seen last month on the London Metal Exchange (LME). In the cash market, prices are in the range of $4,000 per tonne.

Concerns over US manufacturing demand triggered a correction in copper, zinc and tin. This is in contrast to the steady rise in zinc prices over the past two years. Zinc prices rose 231% in the past two years.

While in the short term, there are demand concerns from the US, the International Lead and Zinc Study Group (ILZSG) expects demand to rise by 2.6% to 11.35 million tonnes in ’07. Chinese demand, which constitutes 30% of global demand for zinc, may rise even more by 6.9% in ’07.

Demand:World zinc demand has been growing at 4.3% p.a over the past three years (’02-05). In ’05, world demand for zinc was 10.6 mt, which was slightly less than the previous year.

During January-October ’06, world demand grew 3.7% to 9.1 mt. Asia constitutes around half of the total demand for zinc. China has been a major importer of zinc since ’04.

According to ILZSG, global demand for refined zinc metal is set to increase by 3.9% to 11.06 mt in ’06 and by 2.6% to 11.35 mt in ’07. Chinese demand is forecast to rise by 4.7% in ’06 and 6.9% in ’07. In ’07, China will roughly constitute 30% of the overall zinc metal usage, US 10%, Japan 5% and others 55%. Demand for zinc had fallen 10.6% in the US in ’05.

For January-September ’06, demand was up 6.2% at 1.66 mt. A similar trend is likely in Europe, which saw a 5% fall in demand in ’05. During January-September ’06, demand rose 5.1% over the previous year. Zinc is mainly used for galvanising steel.

Galvanising constitutes 47% of zinc usage, while brass and bronze comprise another 19% and zinc alloys 14%. Zinc is used in protecting steel against corrosion by galvanising.

Galvanised steel is used in industrial, commercial and residential construction. The fortunes of the zinc industry are linked to demand for galvanised steel. Zinc is also used in die-cast applications like household appliances, precision arts for cars, computers and communications equipment.

Supply: Global zinc metal output will rise 4.9% in ’07. China will constitute 30% of the world metal output, Canada 8%, Japan and Korea Republic 6% each. The metal output will rise 10% in China in ’06 and ’07. There will be a 44% rise in India in ’06, while there will be reductions in countries like Mexico and the US.




World mine output is likely to be up 7.3% in ’07. China, again, is expected to be the major supplier in ’07, constituting 26% of overall ’07 supply. It will be followed by Australia (14%) and Peru (11%). World zinc capacities are increasing in many countries in anticipation of rising demand and falling stock levels.

These include countries like Australia, Portugal, Russia, Sweden, Canada, Kazakhstan, Bolivia and China. The world’s largest mines are in Canada, Australia and India. As per reports, Red Dog (Canada) has 19.7 mt of zinc, McArthur River (Australia) 15.5 mt and Mount Isa (Australia) 14.0 mt. Rampura-Agucha (Rajasthan, India) has zinc reserves of 7.8 mt and is the fifth largest mine in the world. Outlook: Historically speaking, zinc prices are quoting at higher levels.

The average price of $4,331 per tonne for ’06 was three times its 10-year average. The lowest yearly averages were witnessed in ’02, when zinc prices averaged $750. But current stock levels indicate demand will keep zinc prices firm in ’07. In December ’05, LME stocks were seeing levels of 420,000 tonnes which fell to 90,300 tonnes in early January ’07.

This is equivalent to two days of global demand, which is very less. On an average, stock levels were 60% less in ’06 compared to ’05, mainly on higher Chinese demand and bounce-back of demand from the US and Europe.

Analysts are bullish on zinc prices in ’07. According to Angel Commodities, zinc as a base metal is expected to be in the broad range of $4,000-5,000 in ’07 with a six-month view of around $4,500. Man Financial expects prices to touch new highs in ’07 and believe $3,831 to be a good support level if zinc prices close below $4,000.


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