Zinc: Renewed Interest In Prices

Zinc prices augured well in August and the start in September is witnessing consolidation at higher levels. LME has reached $ 1986 per tonne recently on 8th Sep 2009 propelled by the rise in financial markets and support from the weaker Dollar. During the month of August price were in the region of $ 1780-1930 per tonne.

In domestic futures market, Zinc reached a 1.4 year high of Rs 97.15 per kg mark on 8^th Sep 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 7.5 weeks of consumption currently. However after the Lead mine closures after the poisoning there are fears that the next scrutiny will be on the Zinc mines and this might cause a significant jump in prices. Going for a 1 year perspective the prices will closely monitor the Chinese imports data while in shorter run it will be trading with speculations on the Dollar and the hopes of revival in global economy.

World refined Production Exceeds Usage-

The global Zinc market was in surplus of 273000 tonnes in the first half of the year (Jan-June 2009) as per the latest monthly report from ILZSG. According to the report during the first half of 2009 world refined Zinc metal usage was 5079000 tonnes as against 5737000 tonnes during the corresponding period previous year. The world zinc refined output for the period of Jan-June 2009 was 5352000 tonnes or down 8.6% as against 5858000 tonnes for the corresponding period previous year. An 8.6% decline in world refined zinc metal production was mainly due to a number of closures and cutbacks, most notably in Belgium, Brazil, Canada, Germany, Japan, the Netherlands, Romania, the Russian Federation and the United States. Despite an increase in Chinese apparent usage of refined zinc metal of 12.1%, world demand fell by 11.5%.

Japan refined Zinc exports triple in July-

Japan's refined zinc exports for July nearly tripled from a year earlier, with China accounting for about 46 percent of shipments, Ministry of Finance data showed on Friday. The July figure marks an increase of about 28 percent from the previous month. Taiwan and Southeast Asia are also large importers of zinc from Japan.

GFMS doesn’t see any material recovery in the demand

GFMS is of the view that though the prices of zinc have been treading higher, any significant recovery on the galvanized steel demand front is yet to be seen. On inventories front as well the stocks are ample at 7.5 weeks of consumption. The latest report released on August 2009, suggest that the recent rally in zinc prices are more speculative then fundamental and therefore sustainability is questionable. According to the report, apparent consumption in China over the first six months of the year, amounted to an impressive 2.192 mn tonnes, marking a 13% increase over the same period last year. The increase was in large measure fuelled by the exceptionally high net imports into the country The state reserve bureau purchases stood at 159000 tonnes.

ABARE suggests Zinc surplus in 2009-

Zinc production for the year 2009 is expected to overtake consumption by 226000 tonnes leading to an increase in zinc stocks by 37% to 4.7 weeks of consumption, as per the June quarter report of Australian Bureau of Agricultural and Resource Economics (ABARE). World zinc consumption is forecast to fall by around 5 per cent to 10.9 million tonnes in 2009. This is a result of lowere construction activity and economic slowdown. Refined zinc consumption in developed economies such as the European Union, the United States and Japan is forecast to decrease in 2009. Declining construction activity, automobile sales and industrial production in these economies have lowered the demand for galvanized steel.

Indian primary Zinc production misses production targets

Indian primary zinc production missed the actual production targets by 15% in the month of July. Total production during the month of July was 49050 tonnes as against a production target of 57713 tonnes. A marginal rise in production of Binani Zinc (BZL) by 31 tonnes was more than offset by the fall in Zinc major Hindustan Zinc (HZL), which registered a fall of 8694 tonnes in the month of July. On M-o-M basis Hindustan Zinc (HCL) primary Zinc production for July 2009 was 46006 tonnes as against a production target of 54700 tonnes down 16%. Binani Zinc registered a rise in the actual production for the period of July 2009 to 3044 tonnes as against a production target of 3013 tonnes up by a meager 1%. During the period of Apr-July total production of refined zinc was 198644 tonnes up 11% from the corresponding period of 2008.

Spark in Zinc prices-

The metal used in making galvanized steel has rallied 59 percent on LME so far this year. During the month of Aug the prices the prices were more or less stable but September has brought significant jump in the metal prices. During the 6 trading sessions of September from 1^st Sep to 8^th Sep 2009, the prices have gained nearly 8% to $ 1986 per tonne on LME. During August the prices remained in the range of $ 1784-$1930 per tonne on LME while closing the month at $ 1880 per tonne. In Domestic futures markets, MCX Zinc prices have significantly moved higher to Rs 97 per kg its 16 month high. The pace of the rally can very well be understood witnessing the prices in mid July with Zinc at Rs 71 per kg.

Outlook:

The higher prices of zinc are more or less the result of decline of Dollar and speculations. In the short term the prices look firm to test fresh highs but longer term targets will still be focused on the demand from China. The second largest miner of Zinc in China, Western Mining, said recently that it has slashed its output targets for the year 2009 after it missed production plan due to falling base metals prices in the first half of 2009. The refined zinc target has now been cut to 56000 tonnes as against 61000 tonnes earlier. During the first half, it produced 24500 tonnes of refined zinc, 80 percent of its target. The revision of targets is expected from other miners as well in coming days. In domestic markets, prices are likely to encounter stiff resistance at Rs 101 per kg while Supports is likely at around Rs 89 per kg.