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ZINC – major market development in April

Posted on: May 7, 2009


Reuters – Thursday, May 7

LONDON, May 6 – Demand for zinc is still weak but the earlier swift producer response to the economic downturn will stand the market in good stead when the recovery gets underway, analysts say.

“The production cutbacks have had the desired impact of underpinning zinc,” independent consultant Angus MacMillan said.

Calyon analyst Robin Bhar said the market would be pretty balanced once demand recovers, thanks to earlier output curbs and project deferrals.

As an infrastructure-focused metal used to galvanise steel, zinc would be one of the winners from spending programmes, he added.

Dan Smith, analyst at Standard Chartered, also expected China’s stimulus package to benefit demand, but the market had done enough on the upside for the present.

“I think the price has got a bit ahead of where it should be and would look for it to trade broadly sideways for now,” he said.

At 1430 GMT the London Metal Exchange three-months zinc price <MZN3> was indicated at $1,568/78 a tonne.

Below are some of the more significant recent developments in production, stocks and prices that may influence the direction of the market in 2009.

PRODUCTION:

April 23 – The global zinc market will be in a surplus of just over 260,000 tonnes this year as demand records its biggest fall since 1975, the International Lead and Zinc Study Group said. Refined output is expected to fall by 4.0 percent to 11.18 million tonnes this year, while demand is forecast to drop by 4.9 percent to 10.92 million tonnes. [ID:nLN957124]

April 21 – Noranda Income Fund <NIF_u.TO> said May output of zinc and sulphuric acid will be reduced by about 20 percent. [ID:nWNAB5488]

April 21 – Workers at Doe Run Peru’s La Oroya smelter have delayed a strike at the plant after the government agreed to meet with union leaders, a union official said. The strike, which had been slated to start at midnight, was to be pushed back by at least 48 hours. Production at the plant has not fully resumed since the company was pulled back from the brink of collapse.[ID:nN21460234]

April 17 – China produced 851,300 tonnes of refined zinc in the first quarter of 2009, down 3.1 percent from the same period last year, the National Bureau of Statistics said. Output of mined zinc fell by 15.6 percent over the same period to 460,100 tonnes. [ID:nAPI000621]

April 14 – The global zinc market was in surplus by 56,000 tonnes in the first two months of 2009, the ILZSG said. Global refined zinc output was 1.699 million tonnes and consumption was 1.643 million tonnes. [ID:nLE212060]

April 6 – Japan’s major zinc producers expect to produce 244,113 tonnes of metal in the six months to end-September, down from 286,554 tonnes a year earlier and from 295,764 tonnes in the preceding six months. [ID:nT44840]

PRICES

Helped by copper’s strength and falling stocks zinc prices rose to $1,566 a tonne and their highest since October in mid-April.

Despite pulling back from there as economic jitters unsettled the base metals complex, the three-month price still ended the month firmer at $1,420 a tonne from $1,328 at the end of March.

The market surpassed the earlier highs on Wednesday, boosted by further inventory declines and hopes that the U.S economy is moving closer to recovery.

In January, the twice-yearly Reuters base metals price poll [MET/POLL] put the 2009 median average for the LME cash zinc price <MZN0> at $1,212.50 a tonne.

STOCKS

LME zinc stocks continued to trend lower in April, ending the month at 328,950 tonnes, down from 344,450 tonnes at the end of March.

Market sentiment has been boosted by an 8 percent decline in inventories between the end of February and the end of last month, and expectations of more withdrawals, particularly in Asia.

Zinc stocks in Shanghai warehouses were 73,188 tonnes at the end of April, down slightly from 76,164 tonnes a month earlier.

Western world commercial stocks totalled 902,600 tonnes or 6.7 weeks of demand at the end of February, up from 889,500 tonnes or 7.0 weeks at the end of January and 764,000 tonnes or 6.0 weeks at the end of 2008.

(3000 Xtra users can access Reuters Metal Production Database by clicking on http://mpd.session.rservices.com. MPD details historical and predicted output and capacity for bauxite, copper, lead, zinc and gold mines, alumina refineries, aluminium, copper, lead and nickel smelters and copper, zinc, lead and nickel refineries between 1997 and 2012.)

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