'Oversold' zinc may find support till supply improves Citigroup trims price forecast for 2008, 2009
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Zinc prices have fallen sharply since last May, and Citigroup's Global Markets Inc's mining and metals team said it therefore trimmed its price forecasts, but it also thinks the metal has been oversold and sees supportive factors in 2008. In his latest report, Citigroup's metals and mining analyst, Mr John Hill, said: "Zinc looks oversold as fundamentals in 2008 are not as bad as sentiment. We now no longer expect a last hurrah before supply overwhelms the market in 2009. "He said London Metal Exchange statistics show the zinc market is running a net short position, and the zinc price appears to be depressed, especially relative to other metals. According to a Citigroup research note, a key issue is timing of the commissioning of new projects in Bolivia, the US State of Tennessee and Australia. In China, concentrate imports continue to surge despite data that seem to show mine supply is increasing. This suggests a domestic concentrate shortage and that mine production is not rising as quickly as metal production.
Just the same, the research team lowered its average zinc price to $1.04 per lb from $1.25 a lb for 2008. In 2009, it now expects zinc will average $1 a lb instead of $1.10 in 2009. The report said spot treatment charges, the fee smelters charge miners to refine their ore into concentrates, are now falling after sharp increases in recent months. Zinc inventories "We believe the increase was driven by the delayed impacts of higher metal prices, as many spot zinc TCs sales (unlike copper) contain price participation," said Mr Hill, referring to treatment costs that fluctuate with the metal price. Miners and smelters are still a long way apart on 2008 contract terms, Mr Hill said. "We understand producers (miners) want $240 per tonne basis $2,000, with plus and minus 7 per cent escalators, equivalent to $275 per tonne basis $2,500," said Mr Hill. He added that smelters, on the other hand, were demanding $350 per tonne based on a London Metal Exchange zinc price of $2,500 per tonne, with an escalator that increases the charge with every 10 per cent rise in the metal price and a de-escalator that subtracts from the charge with ever 5 per cent decline in the metal price. "Based on our metal price forecasts these represent a 6 per cent and 35 per cent, respectively, increase on 2007 terms," he said. But, the report also called rising zinc inventories, mostly in Asian warehouses, "a concerning sign."
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Source : Business Line |
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