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.
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