zinc producers set to fly, page-2

ZINC’S TURN
COMING UP
The spot price for zinc has averaged US48.3c/lb in October, up 19% on October 2003. Under normal
circumstances, this would not be a bad result, but in light of the performances of the other base
metals over the past year -at multiples of zinc’s advance- some commodity experts have already
concluded that zinc will miss out on the current China-inspired boom cycle.
Not so at ABN Amro Morgans. The broker thinks the metal is about to climb out of its trough, advising
investors should start looking at increasing or switching their exposure to zinc for 2005.
One of the causes for the zinc price to lag the other metal price advances is due to the fact this
year’s zinc market supply defi cit has been largely met by metal supplied from unreported holdings
built up during 2003, the broker comments.
But if its prediction that the cupboard is now bare proves to be correct, the market should begin to
see a more aggressive pace of LME stock erosion.
Last Thursday’s news that zinc LME stocks dipped below the 700,000t marker for the fi rst time since
late March this year would fi t in well with this scenario.
And China could well become a net importer of refi ned zinc from the West in 2004, ABN Amro
Morgans believes.
It is the broker’s view that the market may well see a year-end increase in exports and that growth
in Chinese smelting capacity will likely keep China structurally long on zinc; still an exporter, but at
lower volumes.
Recently export quotas for 2005 were reduced, with the Chinese Ministry of Commerce issuing an
export quota of 520,000t for zinc and zinc products, down 12% on the 588,000t of 2004, and a level
unlikely to be fully utilised, the broker believes.
In fact, ABN Amro Morgans believes that being a laggard may well benefi t zinc in comparison with
fast runners copper and nickel who appear to face an “aggressive” supply response over the coming
years. For zinc there appears to be restricted mine supply growth instead.
Against a spot price average of US47c/lb thus far in 2004, ABN Amro Morgans forecasts a 19%
increase in 2005 to US56c/lb, before the spot price is expected to subside in line with the expected
downturn in the metals cycle.
So far this year, LME warehouse stocks of copper have fallen 83%, tin 59%, lead 56%, aluminium
49% and nickel 39%. Zinc stocks have fallen just 5%.