Zinc surplus likely to

Print this page Posted on : 02-28-2008 by recycleinme.com

The price of zinc has dropped more than 30 per cent in the past year as mine supplies increased.

Zinc's price decline may be limited by the increase in investor demand for commodities.

Supplies of zinc, the metal used to galvanise steel, will exceed demand for at least the next three years, accelerating a price decline from record highs in 2006, analysts said. "Some sort of surplus will be generated in the market this year, the next year and the following year," Mr Graham Deller, the principal consultant for zinc at commodity researcher CRU International Ltd, said. "It's hard to see medium-term metal demand keep up with either mine output or smelter capacity."

The price of zinc, which jumped to a record $4,580 a tonne on the London Metal Exchange in 2006, has dropped more than 30 per cent in the past year as mine supplies increased.

Output Growth

More than 50 per cent of the output growth in the past two years has been in China, the world's largest producer of the metal, Deller said.

Global mine production in 2009 will be 1.6 million tonnes higher, or 16 per cent, than in 2006, Deller said. That's a record increase in output and the biggest percentage gain since the 1960s, he said.

In 2006, total mine production was 10.3 mt, CRU estimates. "Mine production is booming," Deller said. "Even after the next two to three years, mine production will continue to increase."

Prices May Fall

Prices will fall because of the surplus, said Mr Leon Westgate, a metals analyst at Standard Bank Ltd, who estimated production will outpace demand by 1.65 lakh tonnes this year.

"The bearish sentiment toward the metal remains as the physical market is soft," Mr Westgate said in a presentation at the International Zinc Conference in Scottsdale, Arizona.

On the LME, zinc for delivery in three months fell $3, or 0.1 per cent, to $2,495 a tonne. Prices will average $2,480 a tonne in 2008, Standard Bank estimates. The metal averaged $3,248 in 2007. Smelters, which process the raw material from mines called concentrates, may reduce output to buoy prices, Mr Deller said.

"It is uncertain whether the surplus will exist in terms of concentrates or refined metal, but there will be one," Mr Deller said.

Zinc's price decline may be limited by the increase in investor demand for commodities, Mr Westgate said. "Inflationary concerns are outweighing global growth concerns," Mr Westgate said. "People see commodities as a hedge against inflation and that will continue to attract further interest from investors."

Source : Business Line