Zinc may explode by 38%
{Australian article prices in Ausie $)
Purchasing
January 18, 2006
The 2006 world average price for zinc could rise by 38% this year to 88¢/lb, according to a new forecast from Mark Pervan, head of research at Daiwa Securities SMBC Australia. That would put the U.S. market price above 90¢.
The consensus forecast for zinc’s spot price this year on the London Metal Exchange has risen to 75¢/lb, up from 64¢ in 2005. That would bring the New York merchant price average up to 80¢ or so. But, because of shrinking world stockpiles, other analysts are considering increases in their forecasts by 10¢ or more. Pervan is already bullish because China’s rising demand for coated steel appears to be taxing world stockpiles. But even more importantly, the metal’s output at Teck Cominco, Zinifex and other producers is lagging behind demand. Global demand for refined zinc this year may rise 5.7%, outpacing the 4.2% increase in mine supply, the International Lead and Zinc Study Group forecasts. "Supply growth is not there, and the players in the market aren't investing in new supply," Pervan said in a Bloomberg report. Zinifex, the world's second largest zinc producer, expects a larger deficit in 2006 for the metal, compared with 2005. Zinc's shortfall in production in 2006 will widen to 399,000 metric tons from 310,000 in 2005, according to an analysis by Morgan Stanley’s London office.
"There's strong demand for galvanized steel, and hence zinc, that's driven by ongoing strong construction, auto and infrastructure demand in China," says Pervan. That’s why China's zinc metal exports "have dried up almost to nothing in the last few months, while imports have rocketed," write UBS Securities analysts Matt Fernley and Peter Hickson in a new report. "We see the major drivers for this as the recovery of the Chinese construction sector, where galvanized steel is a major building material." China’s economy imported 567,429 metric tons of zinc for the first eleven months of 2005, a 36.6% gain from a year ago, according to its customs data. Exports fell 44.5% for the same period. China will likely need more materials to fuel its gross domestic product growth of 8.8% in 2006, boosted by a 20% increase in investments in factories, roads and other fixed assets, the Chinese government research agency State Information Center says.
