Zinc- Rise In The Making

Zinc prices are showing signs of progression in days to come. Depleting Inventories and rise of demand is setting the tone for the better future of the metal. In domestic futures market Zinc broke crucial resistances of 86 per kg mark on 13th Sep 2008 and this is not the end of the road yet. Bargain hunting will further elevate the levels.

Zinc prices are forecast to remain high in 2008-09 as global demand, particularly from Asia which will continue to expand. On the account of higher consumption of zinc in coming days, there is a possibility of another drawdown in global zinc stocks.

Zinc is the fourth most used metal and has applications in a wide range of industries. Zinc deposits often contain other base metals such as lead and copper or precious metals such as silver. The three leading uses of zinc are in steel galvanization, in brass production and in other alloys. Galvanization, where zinc is used to protect steel against corrosion, is a rapidly growing use of zinc and constitutes its main market. Brass is an alloy made up of zinc (10% to 40%) and copper and is widely used in the construction sector. Zinc oxide is used in the production of paint, printing ink, cosmetic products, soaps and other pharmaceutical products.

A recent report from International Lead and Zinc Study group showed the trend for Zinc. According to the report mine production has increased by 21% during January- June period, and reached to 1107 thousand tonnes. On the other hand metal production was also up by 8% during the same period. Refined metal usage was at 1036 thousand tonnes in June as against 910 thousand tonnes in January, registering a rise of 14%. The interesting fact to note is that the demand has outpaced supply in May and June by 15.9 and 4.5 thousand tonnes respectively.

Global refined zinc metal demand has increased by 2.1% mainly due to rise in China while the World production of refined zinc metal rose by 3.2%. This was mainly a result of increases in China, India, Japan and the Republic of Korea. As per the latest release from Australian Bureau of Agricultural and Resource Economics (ABARE) it is expected that in days to come, the majority of the increase in world zinc consumption is expected to be driven by growing demand in Asia. Zinc consumption in major consuming countries such as China, India, and the Republic of Korea is expected to increase by 10 per cent, 6.5 per cent and 6.4 per cent a year respectively in 2008 and 2009.

LME Zinc prices were in the range of $ 2400 per tonne at the start of this year, but lack of demand has pulled the prices towards $ 1842 per tonne levels, registering a fall of 23%. In Domestic futures markets, Zinc prices were in the range of Rs 94 per kg at the start of the year, it then went up towards 116 levels in March and since then there was a incessant fall in prices till mid- August. Since March the prices depleted by 40%. With a hefty correction the equilibrium is shifted in favor of Zinc. In the last few months a sharp appreciation was registered in the value of Dollar as the Euro zone faced the problems of weak economic health, this helped the bears take advantage and Base metals prices corrected sharply. But recently financial trouble again barged in US, as the major financial institutions Lehman brothers and Merill Lynch posted hefty losses from sup prime mortgages.

Lehman Brothers filed bankruptcy under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court. Merrill Lynch & Co, the third largest U.S. investment bank, agreed on 14th Sep 2008 to sell itself to Bank of America Corp. for roughly $ 44 billion. According to the deal, Bank of America will pay $ 29 per share for the 94-year-old Merrill Lynch. Dollar was jolted after the news and provided dollar denominated commodities like Zinc to boost.

Zinc prices are expected to remain firm in days to come, although slight hiccups can take the prices near to its lows but strong consumption patterns from the user industry will ensure that the demand supply gap is maintained. Any sharp fall if any, will be checked by the supply cuts, as was seen earlier from major smelters earlier this year. Initially the rally in Zinc was linked to short covering by the participants, in coming days it will be bargain hunting at lower levels. MCX Zinc futures for September expiry is expected to find supports at 82 and 80 levels, with targets of 97 in medium term.

DOLLAR- ROCK ON!!!!

Dollar has been ROCKIN ON!!!!! against EURO. As I write this report Dollar has gained 978 pips or 6% in a short span of one and a half months (from 16th July 2008: 1.5477 to 1.4499 on 3rd Sep 2008). Before 16th July 2008 the story was altogether different with Dollar loosing 1236 pips or 8% since the initiation of the year when it quoted at 1.4594. The reports which were earlier inclined towards the EURO have now started singing tones of rising Dollar. EURO has been off-color due to the frail reports from majors like Germany, France and Italy to name a few.

The purchasing manager’s index for the manufacturing sector in the euro zone rose to 47.6 in August from a reading of 47.4 in July, up slightly from an initial estimate of 47.5. The reading still indicates a contraction in the manufacturing sector. A figure of less than 50 means a majority of purchasing managers saw a decline in activity. August was the third consecutive month when the manufacturing activity was below 50. Germany along with France and Italy recorded the sharpest rates of contraction. Automobile Sales have also been lopsided. Car sales fell in Spain, Ireland and France in August, signaling that European consumers are delaying purchases of big-ticket goods.

Although, Euro zone Inflation has eased a bit in August. The euro zone's annual rate of inflation fell to 3.8% in August from 4% in July, adding to signs that price pressures are easing. The decline in the inflation rate was the first since March, although it remains above the European Central Bank's target of just below 2%. However, economists expect the inflation rate to fall further, with some forecasting that it will slip below 3% by the end of the year.

The decline in food and oil prices since June has had an immediate impact on inflation expectations, a key concern for the central bank. The commission's survey also recorded a slight pickup in consumer confidence, although it remains low. However, the Economic Sentiment Index that measures both business and consumer confidence fell again, to 88.8 from 89.5, its lowest level since March 2003.

Have a look at US, Orders for manufactured goods increased by more than expected in the month of July, according to a report released by the Department of Commerce, with the increase reflecting growth in orders for both durable and non-durable goods. The report showed that factory orders increased by 1.3 percent in July following an upwardly revised increase of 2.1 percent in June. Economists had expected orders to increase by about 0.8 percent compared to the 1.7 percent increase originally reported for the previous month.

Crude Oil prices have also been easing as the storm threats from Gustav being wiped out. The movement will be closely watched as few more tropical depressions will shape themselves in Hurricanes. One can say that till the time Crude Oil prices keep mum the Dollar is away from the heat. Nothing has changed on economic front in US. It is only the way we look at situations, earlier we were monitoring US now we are monitoring EURO. Till the time keep ROCKING ON with Dollar.