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.