Zinc Prices Experiencing Recovery

Zinc prices progressed well in July after correcting at the start of the month. The prices reached a one and half month high of $ 1698.5 per tonne on 24th July 2009 in LME propelled by the rise in financial markets and support from the weaker Dollar. During the month price were in the region of $ 1700-1490 per tonne.

In domestic futures market, Zinc broke crucial resistances of Rs 78 per kg mark on 17th July 2009. Bargain hunting will further elevate the levels but the prices will be capped by higher production and existing inventory levels on LME. LME zinc stocks are at 7.4 weeks of consumption at 352750 tonnes currently and this will act as a barrier for sharp upswings in the prices. Having said that, short term rallies are not completely out of the picture.

World refined Production Exceeds Usage-

The global Zinc market was in surplus of 178000 tonnes in the first five months of the year (Jan-May 2009) as per the latest monthly report from ILZSG. According to the report during the first five months of 2009 world refined Zinc metal usage was 4219000 tonnes as against 4726000 tonnes during the corresponding period previous year. The world zinc refined output for the period of Jan-May 2009 was 4397000 tonnes or down 9% as against 4832000 tonnes for the corresponding period previous year. A 9% decline in world refined zinc metal production was mainly due to reduced output in Europe, Brazil, Canada, China, Japan, Kazakhstan, Peru and the United States. World zinc mine output declined by 7.16 % to 4286000 tonnes as against 4617000 tonnes in Jan-May 2008.

China will be a key for demand of Zinc-

China was the main growth driver for the world demand of Zinc during the recent months. The key to rise in Zinc will again lie in the hands of China. China’s refined zinc imports jumped to 412239 tons in the first five months of 2009, compared with exports of 4188 tons, as the government increased purchases to boost stockpiles. China produced 1521900 tonnes of refined zinc in the first five months of the year, down 1.4 percent from corresponding period previous year. Mined zinc output fell by 14.7 percent over the same period to 924500 tonnes. Demand from construction and home appliances is expected to remain strong in China. A series of smelters are also expected to start production activities on high economic recovery prospects.
Indian primary Zinc production misses production targets

Indian primary zinc production missed the actual production targets by 11.7% in the month of June. Total production during the month of June was 48933 tonnes as against a production target of 54731 tonnes. A rise in production of Binani Zinc (BZL) by 290 tonnes was more than offset by the fall in Zinc major Hindustan Zinc (HZL), which registered a fall of 6088 tonnes in the month of June. On M-o-M basis Hindustan Zinc (HCL) primary Zinc production for June 2009 was 45728 tonnes as against a production target of 51816 tonnes down 11%. Binani Zinc registered a rise in the actual production for the period of June 2009 to 3205 tonnes as against a production target of 2915 tonnes up 10%. During the second quarter of 2009 (Apr-June) total production of refined zinc was 149594 tonnes up 10% from the corresponding quarter of 2008.

Zinc prices on a recovery mode-

The metal used in making galvanized steel has rallied 36 percent on LME so far this year. During the month of July the prices have so far rallied 8% from $ 1574.5 per tonne to $ 1698.5 per tonne. The prices saw some profit booking in the initial period when it tested a low of $ 1490 per tonne on 13th July 2009, but later on weaker Dollar has helped the prices to recoup lost value. In Domestic futures markets, MCX Zinc prices were in the range of Rs 75.8 per kg on 1st July 2009, it then went down towards Rs 71 per kg levels on 13th July 2009 and since then there was a steep rise in prices towards Rs 81.55 per kg.

Peru’s Zinc Output Falls In June-

The world second largest exporter of Zinc saw a decline in Zinc output in June on a yearly basis. The total refined Zinc output for the month of June was 120779 tonnes down 15.08 percent when compared to June 2008. Lack of demand in the early part of the year has pressurized smelters to cut the production or to stop the production due to lower profit margins. During the month of May refined zinc production of Peru was 122432 tonnes down 8.59 percent from the corresponding period year.

Outlook-

Higher prices of Zinc are expected to restart some idled capacity in the metal but the future will depend on the demand for Zinc. Germany's government plans a special aid programme of 40 million euros to help the country's non-ferrous metal industry survive the economic slowdown. The measure will create additional opportunities for the Zinc manufacturers. In another news, Belgium's Nyrstar recently has said that it has plans to expand into mining to complement its smelting operations. If the demand doesn’t improve than the surplus production will get highlighted on the inventories in LME.

The demand worries is likely to emerge after the starts of major smelters and expansion plans of some of the major smelters as stated above. This along with already existing surplus will further swell the stockpiles, therefore every rise in Zinc is expected to remain capped. In domestic markets, prices are likely to encounter stiff resistance at Rs 90 per kg while Supports is likely at around Rs 78 per kg.

Lead Will Strangulate Going Forward

Lead prices were quite volatile during the month of July. The prices tested a 1 month high on LME at $ 1757 per tonne on 24th July 2009. During the month the prices tested a low of $ 1589.50 per tonne on 14th July 2009. Rise in equity markets and fall in Dollar was supportive for Lead at the end of the month. In domestic markets Lead tested its peak of Rs 86.25 per kg on 28th July 2009. During the whole month inventories of LME kept on piling up which will be a cause of concern for Lead in the coming months. A pullback in the prices are expected as Dollar now seems to be consolidating after a fall against the EURO and consumption patterns are expected to proceed in similar muted lines with no drastic rise expected in demand.

World refined Lead Production Exceeds Usage-

The global Lead market was in surplus of 26000 tonnes in the first five months of the year (Jan-May 2009) as per the latest monthly report from ILZSG. According to the report during the first five months of 2009 world refined Lead metal usage was 3452000 tonnes as against 3464000 tonnes during the corresponding period previous year. The world Lead refined output for the period of Jan-May 2009 was 3478000 tonnes or down 0.17% as against 3472000 tonnes for the corresponding period previous year. World Lead mine output declined by 5% to 1468000 tonnes as against 1546000 tonnes in Jan-May 2008.

China production of Lead increases -

China was the main growth driver for the world demand of Lead during the recent months. China’s Lead concentrate imports jumped to 549687 tons in the first five months of 2009 up 13 percent. China produced 1358900 tonnes of refined Lead in the first five months 2009, this was up 20.4%. Chinese output of mined lead rose by 6.3 percent to reach 482300 tonnes during the period of Jan-May 2009.

Indian primary Lead production misses production targets -
Indian primary Lead production met the actual production targets by more than 40% in the month of June. Total production during the month of June was 5291 tonnes as against a production target of 3780 tonnes from Hindustan Zinc. Indian Lead is gearing up for production from its plants at Thane and Kolkatta and therefore the production was not reported. Total installed capacity for Indian Lead is 24000 tonnes. During the second quarter of 2009 (Apr-June) total production of refined Lead was 15218 tonnes down by 12% from the corresponding quarter of 2008.

Lead recovers in major exchanges-

The metal used in batteries has run up 85 percent on LME so far this year. During the month of July the prices have rallied 3% from $ 1705 per tonne to $ 1757 per tonne. The prices saw some profit booking in the initial period when it tested a low of $ 1589.50 per tonne on 14th July 2009, but later on weaker Dollar has helped the prices to recoup lost value. In Domestic futures markets, MCX Lead prices were in the range of Rs 82.85 per kg on 1st July 2009, it then went down towards Rs 75.75 per kg levels on 14th July 2009 and since then there was a steep rise in prices towards Rs 86.25 per kg.

Outlook-

Lead prices have rolled higher in 2009 even after the rise of stockpiles across the globe. If the demand doesn’t improve than the stockpiling will continue. LME stocks are already at 1 year highs. The stocks are currently at 3.6 weeks of consumption in May 2009 as against 3 weeks at the end of 2008. The demand worries are likely to emerge after the starts of major smelters and expansion plans of major smelters which will gyrate the inventories further. Therefore every rise in Lead is expected to be facing supplies. In domestic markets, prices are likely to encounter stiff resistance at Rs 86 per kg while Supports is likely to emerge around Rs 80 per kg.

Nickel: Not Much Too Run For...

Nickel prices remained volatile during the month of July. The prices corrected during the initial period of July from $ 15800 per tonne on 1st July to $ 14405 per tonne on 13th July 2009 from where it bounced towards $ 15920 per tonne on 17th July 2009. The prices corrected sharply as the news of China halting its buying for reserves spread, however later on support from the Dollar ,Imports data from China and US economic recovery signs brought back buying at lower levels.

Global Stainless Steel Output Declines On Y-o-Y Basis:

The International Stainless Steel Forum (ISSF) preliminary figures for first quarter 2009 stated that the World stainless steel production was down by 34.5% or 2.54 million tonnes to 4.8 million metric tons (mmt) on a Y-o-Y basis. This is the lowest level of first quarter production since 2000.

Stainless Steel production in Asia (excluding China) declined by 40.5% to 1.28 mmt during Q1 2009. China which accounts for 27% of the stainless steel produced in the world witnessed reduced production to 1.7 mmt or 10.3% from corresponding period of Q1 2008. The second biggest stainless producing region, Western Europe/Africa, reported a decrease in stainless steel production of 46% to 1.31 mmt in Q1 2009.

Chinese world steel production fell by a far less percentage when compared to peers. ISSF said in the report that the numbers from China was reflective of the massive stimulus packages given earlier this year which didn’t led production to totally loose track.

China Refined Nickel Imports at Record High:

Chinese refined Nickel imports increased by 19 percent to 25032 tonnes in May. This is an all time high record for the second consecutive month. China GDP figures also highlighted better prospects for the economy. The Chinese economy expanded 7.9 percent year on year in the second quarter, as massive stimulus packages and record lending pushed for a rebound from the worst growth in a decade. The world's third largest economy tumbled to 6.1 percent in the first quarter as exports shrank to a decade low. Benefiting from the massive government spending in the construction of railways, roads and infrastructure, the fixed asset investment rose 33.5 percent in the first six months, the most in five years.

In last few months Nickel supply has increased in the domestic markets on the back of high imports and better demand forecasts for the future. However in the current situation the high supplies are not matching the lower demand and analyst are expecting prices to correct sooner or later.

World Largest Miner Vale Halts Sudbury Mine Operations Due To Strikes :

Companhia Vale do Rio Doce (Vale) announced that hundreds of union workers at Vale Inco's nickel operations in Sudbury are on strike on issue of Vale's proposal to reduce a bonus tied to the price of nickel. In addition, workers opposed a plan by the company to exempt new employees from its defined-benefit pension plan, which guarantees employees a reliable and steady income after retirement. Wayne Fraser, Steelworkers director for Ontario and Atlantic Canada and a member of the union's bargaining committee said 85 per cent of the members rejected the contract.

Domestic Nickel Prices Tied On Upper End:

The domestic prices of Nickel on MCX recovered well in July after initial hiccups. In the start of July prices were at Rs 778 per kg from where it slumped towards Rs 702 per kg on 13th July 2009. The recovery from thereon has been thick and fast. Prices have managed to bounce by 12.5 percent to a high of Rs 790 per kg on 17th July 2009. The forecasts for the coming months of 2009 seem tied by the fact that the recovery in the global markets will be slow. In domestic futures market Nickel prices are expected to trade between the range of Rs 805-750 per kg.

Outlook:
The refined Nickel consumption is expected to grow marginally in second half of 2009 as per ABARE (Australian Bureau of Agricultural and Resource Economics). For 2009 as a whole world nickel consumption is expected to decline by 8 percent to 1.2 million tonnes. Nickel mine production is expected to decline by 13 percent, the rapid fall in prices of Nickel has made production in most of the mines uneconomic.

Nickel mine production is forecasted to be around 1.2 million tonnes in 2009, down from 1.4 million tonnes in 2008. Nickel prices are expected to average at $ 15000 tonnes in the second half of 2009. This is almost $ 1000 per tonne lower from the latest LME prices of $ 15950 per tonne. The stocks are expected to be 7.3 weeks of consumption in 2009 as against 6.3 weeks of consumption in 2008.

Aluminium: Breaks Put By Falling Consumption

Aluminium prices in June managed to come out of the jinx of the earlier months. The prices saw a recovery in international markets and this positively impacted the prices in Indian markets as well. LME prices tested a high of $ 1675 per tonne on 26th June 2009. During the month of June the prices gained $ 191 or 13% to $ 1650 per ton on 30th June 2009. In H1 2009 (Jan-June) the Aluminium prices have recovered by $ 115 or 7.5%. The prices in the coming days are however expected to face a halt as the demand prospects are still grim. Chinese buying will be taking a backseat as the demand is not fully meeting the supply and the reserves maintained are already high. Aluminium is expected to maintain sideways momentum with some negative bias.

Global Production Of Primary Aluminium Declines:

International Aluminium Institute’s (IAI) latest data for the period of Jan-May 2009 states that the World primary Aluminium production declined by 7.7% to 9.86 million tons as compared to 10.68 million tons during the corresponding period previous year. Overall, Asia produced 1.79 million tons of primary Aluminium in first five months of 2009 a rise of 12% from Jan-Feb 2008. With the exception of Asia, all other regions posted a decline in the primary Aluminium production. North America registered the worst decline of 16% due to lower demand from Aluminium consuming sectors.

Indian Aluminium production increases in May:

Indian Aluminium production increased in the month of May following the trial run production from Vedanta Aluminium Limited (VAL). Vedanta has commissioned its smelter at Jharsuguda from April, 2008 which is presently under trial production. On a monthly basis, NALCO also registered a rise in Aluminium production in May 2009 by 4.8% to 35971 tonnes as compared to April 2009. Bharat Aluminium Company production for May 2009 was 25387 tonnes as against 25304 tonnes in April 2009. When compared on a Y-o-Y basis, the production of NALCO was up 22% from 29437 tonnes in May 2008. Hindalco registered a rise in the actual production for the period of May 2009 to 45919 tonnes from 42189 tonnes in May 2008. On a yearly basis the production increased by 8.8%. Production for the month of April 2009 was 43988 tonnes.

Alcoa losses intact for the third consecutive quarter:

Alcoa second quarter results showed a net loss of $454 million. The loss from continuing operations showed a increase of $168 million to $ 312 million in the second quarter compared with the first quarter loss from continuing operations of $480 million. The demand and prices of Aluminium continued to be impacted by recession which caused the loss for one of the largest producer of Aluminium. Alcoa plans to expand its operations with commissioning of new refineries. The Alumar refinery has already begun to produce its first alumina and is on target for ramp-up to full production during the second half of the year. The upgrade and expansion project will increase the output of the refinery from approximately 1.5 million mt to a total production capacity of 3.5 million mt per year for the Alumar consortium.

Piled Inventories In LME Will Be Difficult To Set off :

LME inventories maintained sharp upswings in the early part of 2009. The same are still quite high when compared to the demand. Total inventories in LME are 4397100 tonnes on 8th July 2009 as compared to a meager 340550 tonnes at the start of this year. China has shown reluctance in increasing its stockpiles of Aluminium further and this means that the rise in stockpiles will continue. LME Aluminium showed recovery all through June, from supports of demand refurbishment from China and easing Dollar, but this recovery is expected for a short term due to the emphasis by major countries on the value of Dollar. Most of the developed and developing nations have their reserves in Dollar and therefore measures have been taken to tackle the slump in Dollar. Lack of arbitrage opportunities and demand on the other hand is causing China to pull its hands out from creating fresh stocks. This is a reason that in early July we have seen Aluminium prices lacking the momentum. The prices are in a low volatile zone now with negative prospects.

In June the prices of Aluminium increased by almost 13% or $ 191 to $ 1650 per ton. In July a correction of 3.7% is registered in the prices which has taken then towards $ 1591 on 8th July 2009.

Outlook:
Aluminium saw a pleasing run in June 2009, on the back of falling Dollar and rising global economic demand scenario. In the month of July the expectations need to be curbed downwards. The latest report by Australian Bureau of Agricultural and Resource Economics (ABARE) suggests that prices for the coming days will remain dependent on the consumption patterns among major economies. World aluminium consumption is forecast to decline by around 12 per cent in 2009, to 32.5 million tonnes. In the first quarter of 2009, China consumption declined 10%. The reducing consumption patterns in consumption patterns have not affected the demand prospects in Middle East. Low energy costs in the Middle East are helpful for production of Aluminium. Aluminium is a highly energy intensive sector.

In domestic market, India recently put a safeguard duty upto 30% on key aluminium components from China. The measure was taken to provide support to the ailing domestic aluminium sector. India’s top Aluminium maker Hindalco reported an almost 80 percent slump in consolidated profit for the year to March. MCX Aluminium futures were mostly range bound between Rs 75-81 per kg during last month. In the near future prices are expected to break the bottom range and prices can test Rs 70 per kg, the upper cap of Rs 81 per kg seems to be intact for some more time. Overall a correction of 6-8% will bring fresh buying opportunities in prices.

Copper: Halt In Chinese Shipments A Barrier For Prices

Copper prices started the June month with a lot of conviction. On LME it was the shrinkage of inventories and rise of equity markets that invoked confidence in the traders. During the first 6 months of 2009 the Copper prices have registered a increase of 61%. In the domestic markets, MCX Copper futures touched a high of Rs 257 per kg up 63% from the start of the year. In June month the prices have increased by 4 % to Rs 245 per kg. Increased usage from the industry and expectations of economic recovery helped Copper to gain momentum up till now. However, near future is pointing selling in Copper prices as the current inventories are piling up to 5 week of consumption which is comfortable level. Chinese consumption levels are expected to decline in the coming months, a affect of which is seen in the recent halts in shipment levels.

World Market In Surplus During First Quarter Ending March 2009:

The latest monthly report from International Copper Study Group (ICSG) was released in June. The report showed that the apparent refined copper balance for the first quarter 2009 (Jan-March), including revisions, had a production surplus of around 50000 tonnes, compared to a production deficit of 67000 tonnes during Jan-March 2008. China registered a high apparent usage of Copper. Chinese usage of Copper increased by 36% during Q1 2009. Even after the rise in China, World refined Copper usage declined by 4%. The major consuming nations which showed a decline in apparent usage of Copper were European Union, Japan and US. These three regions showed a negative usage of 25%, 46% and 27% respectively.

Interesting to note was that World mine production capacity utilization declined below five years average of 87% to around 77%. Australia, China and Chile registered a decline in mine production. World mine production grew by 57000 tonnes or 1.6% in Jan-March 2009 as compared to the corresponding period previous year.

World Refined Copper Production Declines During Q1 2009:

World refined Copper production declined by 1.6% during the first quarter of 2009. Primary production decreased by 0.3% while secondary production came down by 9%. Major decrease in the production was witnessed in US by 10% while in EU and Asia production came down by 9% and 2% respectively.

Chinese Demand Expected To Slow In Coming Days:

Shipments in China were running at record volumes because of favorable arbitrage opportunities till May. However declining premium in China has lead to a situation of halt in shipments in China.

In the first five month China imported 1.4 million tons of refined Copper, marking a increase of 130 percent from corresponding period of 2008. The rise in imports was a resultant of massive stimulus package from Chinese government and buying from Chinese state reserves bureau. The rise of imports has created a surplus situation in China.

In May, Chinese imports hit a record for the fourth straight month. China imported 337230 tonne of refined copper in May, up by a whooping 258 percent than in corresponding period in 2008.However, apparent usage in May has came down by 3.5% and imported volumes earlier this year are not finding the end users. High volumes of imports in China will not find support of the demand as well as arbitrage in the coming month. And this is when one can expect prices of Copper to remain under pressure.

World Copper Market To Remain In Surplus In 2009-2010:

ICSG is very cautionary of the supply and demand scenario for 2009 and 2010 and has revised its projections downwards for the coming years. The report from ICSG says that although the market developments are not fully know yet it projects World Refined Copper surplus of 345000 tonnes in 2009 and 400000 tonnes in 2010. For the year 2008 the World Copper market showed a surplus of 250000 tonnes. World copper mine production in 2009 is expected to rise by 3.8% or 590000 tonnes this is revised significantly from 11% growth projected in October 2008. Mine capacity utilization is expected to remain at 81%, its lowest levels since 1989.

Australian Bureau of Agricultural and Resource Economics (ABARE) predicts World Copper prices to average at $ 4416 per tonne in 2009 down 37% from 2008. In 2010, the world copper price is forecast to increase by 24% to average $5488 a tonne. World consumption of Copper is also expected to move down to 17.2 million tonnes down 4%.

Indian copper production increases in May:

Indian copper cathode production increased in the month of May following the production from Hindalco. All the other companies registered a fall but a rise in the production of Hindalco increased the overall production by 54%. On M-o-M basis Hindustan Copper (HCL) copper cathode production for May 2009 was 1298 tonnes as against 1310 tonnes in April 2009 down 1%. When compared on a Y-o-Y basis, the production of HCL was down 54% from 2816 tonnes in May 2008. Hindalco registered a rise in the actual production for the period of May 2009 to 26544 tonnes from 18211 tonnes in May 2008. On a yearly basis the production increased by 45%. Production for the month of April 2009 was 31179 tonnes. Sterlite Industries (SIL) produced 26627 tonnes of Copper up 9% as against 24512 tonnes in May 2008. In April 2009 Sterlite production stood at 23061 tonnes of Copper cathode registering a decline of 15%. Total production of copper cathode in April stood at 54469 tonnes.

Outlook:

The prices have run to levels from where correction is inevitable, resurgence of Inventories will be supportive for the corrective triggers in prices. There is news of low off take from the Chinese end users and that will ensure that the shipments to the world’s biggest consumers are delayed. That will put pressure on the Copper prices going forward. Technically speaking Copper on domestic futures markets can correct upto Rs 220-210 per kg levels in near term. Slowness of demand in US and Europe was already factored and the same is expected to stretch further. In Dollar some fresh bouts of rally is expected against the EURO, which will bring decline in metals prices.