zinc supply crunch, now !!!

Zinc to outperform base metals pack on supply crunch

Zinc is likely to outshine all the other base metals for the next two years as its prices are likely to rise on supply crunch globally, experts and analysts said.

“Over the coming two years, we would expect to see a significant tightening of the global zinc market.

For 2014, we forecast average zinc prices of $2,175/tonne, rising to an average of $2,400/tonne in 2015,” a report by Natixis Commodities Research said.

The zinc market has for some years been facing the imminent demise of a number of significant mines around the world. “Around three zinc mines having capacity of nearly 1 million tonne, which constitutes 10% of global supply, are likely to shutdown. So prices are expected to increase; in fact, zinc will outperform other metals,” Goutam Chakraborty, analyst with Emkay Global told dna.

Demand for the metal has also showed significant recovery, especially across the BRIC (Brazil, Russia, India, China) countries, Natixis said.

Aluminium, on the other hand, may remain in oversupply for next few years. “Current global capacity utilisation of aluminium remains high at 75% and China continues to add new capacity. Demand, however is not improving the way it should, which will keep prices of the metal under pressure,” Giriraj Daga, an analyst with Nirmal Bang said.

Overcapacity has caused sustained downward pressure on aluminium prices, with the benchmark London Metal Exchange (LME) prices remaining in a narrow range of $1,700-$1,900/tonne since the end of first quarter, Natixis said.

Despite being an oversupply, aluminium has remained in short supply in the spot market due to artificial supply squeeze created by warehouse owners across the globe, Chakraborty said, adding that LME has tried to address this issue with changes in rule.

The LME’s proposed warehousing rules intends reducing queues for metal delivery from its licensed warehouses. The proposed rule changes are likely to free up as much as 1.4 million tonne of the metal over the coming two years, Natixis said. The report forecasts LME aluminium price $1,900/tonne in 2014 and $2,050/tonne in 2015. “The forecast reflects a market in which the all-in price of metal remains depressed throughout the period, but the LME price gradually catches up with the all-in price as physical premiums decline,” the report said. All-in price is a combination of LME price and physical premium buyers have to pay in the spot market.

While demand for aluminium may remain under pressure globally, it is expected grow at 10% in the domestic market as against 4% of global average, Chakraborty said. Supply is also likely to catch up with Hindalco adding 3.59 million tonne capacity at its Mahan plant.
Bharat Aluminium is also adding 0.325 mt capacity.

The base metal market is likely to benefit from steady recovery in global markets as developing countries begin to catch up with growth in US economy, Natixis said. The report also at limiting potential price gains for aluminum and nickel. The copper market is also expected to slip into surplus, going forward.

http://www.dnaindia.com/money/1897553/report-zinc-to-outperform-base-metals-pack-on-supply-crunch