Zinc May Rise Above $5,000 on China, Macquarie Says (Update3)
By Debarati Roy
Nov. 8 (Bloomberg) -- Prices for zinc, used to rust-proof steel, may rise 11 percent to trade above $5,000 a metric ton by the end of the year because of rising demand from China and supply disruptions, Macquarie Bank Ltd. said.
``Zinc looks as though it's running out,'' said Adam Rowley, London-based analyst in an interview yesterday in Mumbai. ``When a commodity runs the price can go anywhere as we have seen in copper and nickel.''
Zinc rose to a record on the London Metal Exchange after inventories of the best performing commodity in 2006 fell to a 15-year low. Chinese zinc demand will exceed output by 400,000 tons this year, according to government-affiliated Beijing Antaike Information Development Co.
Zinc for delivery in three months on the London Metal Exchange rose as much as $35, or 0.8 percent, to $4,535 a ton, the highest ever. It traded at $4,518 as of 9:29 a.m. London local time.
``Zinc supply looks extremely tight, while the drawdown has increased in the past three years, demand has risen,'' Rowley said. This year's supply will lag demand by in excess of 300,000 tons, he said.
Prices for zinc may average 9 percent more next year, beating other industrial metals such as copper and nickel, because of disruption to shipments from the U.S., RBC Capital Markets said Oct. 28.
`Uncharted Prices'
``These prices are uncharted and so it is difficult to predict a target but in the short-term we may see $4,700,'' said Rajini Panicker, head of research at Man Financial India Commodities Ltd.
Prices of industrial metals have soared in the past three years partly as China's booming economy stokes demand for the raw materials needed for factories, cars and appliances. Nickel has more than doubled and copper has risen 69 percent this year. China's economy expanded 10.4 percent in the third quarter.
``Consumption still exceeds production,'' Boliden AB, a Swedish copper and zinc producer, said Oct. 31 in a statement. Global zinc consumption rose 3.5 percent in the first nine months of the year, driven by China, the world's largest consumer of the metal, the Stockholm-based company said.
`Zinc Plays'
Shares of Korea Zinc Co., the world's largest producer of the metal, rose 1 percent to close at 108,000 won ($115). They rose 7 percent yesterday. Zinifex Ltd., the world's second- largest producer, fell 1.1 percent to A$16.552 after closing at a record yesterday. Both stocks have more than doubled this year.
Shares of Hindustan Zinc, India's largest producer, dropped 1.6 percent to 965.8 rupees in Mumbai. The stock has gained four times in value this year.
OAO Chelyabinsk Zinc Plant, Russia's largest producer of the metal, yesterday raised a greater-than-expected $336 million selling shares in London. Russia is one of the world's 10 largest producers of zinc.
``Zinc is one of the strongest-performing base metals and there are few zinc plays available globally, so this was a successful offering,'' Vladimir Katunin, a metals analyst at Aton brokerage in Moscow, said yesterday in a telephone interview.
Global use will increase by 3.9 percent to 11.1 million tons this year, and by 2.6 percent to 11.4 million tons in 2007, the International Lead and Zinc Study Group said Oct. 9.
``The market is now testing how resilient the demand is,'' Macquarie's Rowley said.
Canada's Teck Cominco Ltd., the world's largest producer, said Oct. 30 that shipments of zinc concentrate were delayed in the third quarter by bad weather at the Red Dog mine in Alaska.
Zinc for immediate delivery may rise to $5,000 within the next 12 months as supply lags behind demand, Standard Bank Plc. said in an Oct. 10 report. The price may average $3,140 this year before rising to $3,450 in 2007, said the London-based unit of South Africa's Standard Bank Group Ltd.
To contact the reporter on this story: Debarati Roy in Mumbai at droy5@blomberg.net .
Last Updated: November 8, 2006 05:41 EST
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