Zinc prices have been on a volatile path ever since the markets started facing the news flow of debt burden of Greece, Italy and Portugal etc. The LME three month forward contracts were up and down in February unable to hold any single trend. On LME Zinc tested a one month high level of $ 2324 per tonne on the 17th Feb 2010 after that the prices slumped towards $2200 per tonne levels on 1st March 2010. We expect the prices to remain more or less sideways with negative bias during March but 2010 is expected to be a positive year for the metal used in galvanized steel making. Automotive and manufacturing industries consumption of refined Zinc is expected to increase which might improve the prices in second half of 2010.
World refined Production Exceeds Usage during Jan-Dec 09- ILZSG:
The global Zinc market was in surplus of 445000 tonnes during 2009 as per the latest monthly report from ILZSG. This is also the largest surplus of refined Zinc metal since 1993. According to the report during 2009 world refined Zinc metal usage was 10832000 tonnes down 5.3% or 604000 tonnes from 11436000 tonnes during the corresponding period previous year. The world zinc refined output for the period of Jan-Dec 2009 was 11277000 tonnes down 3.2% as against 11655000 tonnes for the corresponding period previous year.
A 2.7% decline in world zinc mine production was mainly due to number of reductions in Australia, Canada, Chile, China, Peru, Poland and US. Chinese production of refined zinc was up by 11.3% but this failed to set off the decline in global zinc output.
Demand decline was registered in Europe by 25%, 10.5% in the United States, 23% in Japan and 22% in the Republic of Korea were partially balanced by an increase in Chinese apparent usage of 17.8%.
Demand to improve in coming months:
Zinc is mainly used to galvanize steel against corrosion. This use accounts for more than half of global consumption. China's surging demand for steel this year is expected to dominate the landscape of the steel industry. Due to high cost structure many plants across the globe were shut down which will be impacting the production levels.
But world surplus in production will be supported by the rise of consumption levels in countries like China and India. This will ensure demand supply equilibrium. The latest report from Australian Bureau of Agriculture and Resource Economics (ABARE) expects refined Zinc prices to average at $ 1940 per tonne in 2010 as against the average of $ 1501 per tonne in 2009. World refined consumption is expected to increase to 11.2 million tonnes in 2010 up 6%. Higher demand in China, US, Japan and India will be corroborating the prices.
Global Zinc mine production is estimated to have declined by 8% to 10.8 million tonnes in 2009. A total of 1.5 million tonnes of mine production has been shut due to onset of global financial crisis. In the year 2010, the world zinc mine production is expected to rise marginally to 11 million tonnes. However sulphuric acid prices have been lower and this can adversely bear on the profitability levels of smelters which produce it as a by product.
Indian primary Zinc production misses production targets
Zinc production for the quarter ending September 2009 increased by 16% to 140661 tonnes. On a cumulative basis zinc production during April-November 2009 was 401408 tonnes up 9% as against 368876 tonnes during the corresponding period previous year. The rise was the result of increase in production in Hindustan Zinc by 26416 tonnes and 6146 tonnes in Binani Zinc. The total production of Hindustan Zinc was 46828 for the month of November 2009. Binani Zinc registered a production of 3235 tonnes. The production target for the month of November 2009 was 58973 tonnes which fell short by 15%.
Zinc volatile during last one month
The metal used in making galvanized steel has seen profit booking and consolidation since mid February after a one month in LME and MCX. From 2009 till date zinc has seen significant jump in value. Zinc has given returns of 75% on LME and a whopping 62% on MCX. In February, the prices gained nearly 10% to $ 2324 per tonne on LME till 17th February 2010 but from thereon a slide was seen in the prices and Zinc is now at $ 2200 per tonne down 5% on 1st March 2010. In Domestic futures markets, MCX Zinc prices were at Rs 99.8 per kg on 1st Feb 2010, the current settlement on Zinc was at Rs 102 per kg on 1st March 2010. The prices have also seen one month high levels of Rs 109 per kg on 17th Feb 2010. The pace of the rally can very well be understood witnessing the prices at initiation of 2009 were in the region of Rs 60 per kg.
Concluding remark:
During March zinc prices are expected to remain under tight range with major supply zones at Rs 109 per kg in the domestic markets. In coming months zinc can face positive surprises on account of higher consumption levels and lower production. Chile faced the worst earthquake recently which will curtail the production of the metals from major smelters. The year 2010 for Zinc is expected to be driven by growth story of China and India.
Chinese steel production and demand is expected to remain high. Chinese government is funding massive construction and immense infrastructure projects for rail, road and bridges through stimulus packages. More than two-thirds of zinc consumption is used in the form of galvanized (zinc coated) steel to prevent corrosion. Production of galvanized steel in China is increasing year on year by an average of 15 per cent. The production delay and smelter shut down will ensure that the demand and supply gap does not increase. MCX Zinc prices can test Rs 93 is short term while Resistances will be at Rs 109. On a longer term perspective prices can test Rs 115-120 levels.
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