Tuesday, April 03, 2007 7:52:05 PM
Excess Zinc Supply Could Cause Price Drop in 2007
http://www.resourceinvestor.com/pebble.asp?relid=30521
By Interfax-China
03 Apr 2007 at 08:36 AM GMT-04:00
SHANGHAI (Interfax-China) -- Zinc prices may decline after a peak in early 2007, but will still remain at around $2700 per metric tonne on the international market and RMB26,000 ($3361.69) per metric tonne on the domestic market due to increasing supply, according to several analysts at the Zinc Futures Introduction on Shanghai Futures Exchange.
"The slow down in the global economy, a rise in raw material prices, China's increasing exports and expanding smelting capacity, a temporary rise in stockpiles and falling demand will all have an impact on this year's zinc prices," said professor Feng Juncong at Antaike Information Development Co. Ltd., a state-owned nonferrous metals information provider.
China's zinc output may rise by 400,000-500,000 metric tonnes this year to around 3.55-3.7 million metric tonnes. China's apparent zinc consumption is set to grow to 3.65 million metric tonnes from last year's 3.39 metric tonnes, Feng told Interfax.
While zinc output and consumption figures for 2007 show that supply has increased, Feng stressed that there will still be a global shortfall of approximately 100,000 tonnes this year.
Part of the reason for the increased domestic zinc supply last year was as a result of secondary zinc production, facility upgrades and more tailing ore utilization following last year's increased zinc prices. Zinc production from tailing ore, which is a relatively high cost process, will decrease in line with the predicted fall in zinc prices. The use of tailing ore increased China's zinc production by 100,000 tonnes last year, Feng said.
In accordance with the Chinese government's controlling policies released last month, small and outdated mining capacity will be gradually phased out this year. New lead and zinc mines will be blocked if their annual capacity is under 30,000 tonnes and the service period is less than 15 years.
China's zinc exports surpassed imports for the first time last October, a consequence of the price difference between domestic and overseas markets.
Feng predicts that China's zinc imports and exports will fluctuate over the next few months, but China will still remain a net zinc importer this year. Zinc concentrate imports will rise by approximately 200,000 metric tonnes this year, regardless of temporary fluctuations.
High raw material prices lead to frenzied zinc mine investment by major zinc companies last year, including Chihong Zinc and Germanium and Huludao Zinc. Zinc smelters also expanded production.
Chihong Zinc and Germanium Co. Ltd., the listed subsidiary of Yunnan Metallurgical General Company (YMGC), issued an additional 35 million A-shares to YMGC for the acquisition of the Zhaotong lead & zinc mine. Huludao Zinc Industry Co. Ltd. will issue 300 million additional A-shares in an effort to raise RMB 120 million ($15.19 million) to purchase a lead and zinc mine in Tibet.
China's expanded zinc capacity will reach optimum capacity this year, while the number of new zinc projects is predicted to decrease. 313 zinc mining projects were under construction or expansion last year, with 218 newly constructed, among which 23 had investments over RMB 100-500 million ($12.94-64.68 million). Most of the new projects were in Inner Mongolia, Yunnan Province, Hunan Province and Gansu Province, Zhao Cuiqing with the China Nonferrous Metals Industry Association, said.
Zhao added that China has recently promoted zinc imports over exports and encouraged domestic zinc miners and smelters to develop overseas resources. Since September 2006, the tax on zinc exports has been set at 5% and the zinc export tax rebate has been cancelled for grade <99.99% zinc.
Global zinc output increased 4.2% in 2006 and is predicted to increase an additional 5% this year, according to figures released by the International Lead & Zinc Study Group (ILZSG). Antaike predicts global output will rise more than 7%.
China's zinc smelting capacity will increase 200,000 metric tonnes this year, following a 2006 increase of 400,000 metric tonnes in 2006. China produced 3.96 million metric tonnes of zinc in 2005.
China was a net importer of refined zinc last year, with net imports totalling 191,000 tonnes in 2006, down 59.7% from the previous year.
China reported a zinc export increase of 404.9% to 119,292 metric tonnes in January and February, while zinc imports fell 61.7% to 21,442 metric tonnes, according to statistics released by the General Administration of Customs recently.
Zinc prices have increased 137% as a result of good fundamentals, expectation of China's growing demand, insufficient supply of zinc concentrate and fund speculation, Feng said.
Zinc futures have risen in the past two years due to high demand, economic growth in western countries and insufficient global raw material supply caused by underinvestment in the mining industry. Falling stockpiles, a weak dollar and fund speculation have also increased zinc prices, she added.
"Investment banks began to approach me in October of 2005 with questions concerning China's zinc industry," Feng said.
Feng said China's zinc exports and demand will dominate world zinc prices in 2007. China's industrial policy movements will impact the world market.
The launch of zinc trading on the Shanghai Futures Exchange (SHFE) will allow interaction with the world market. "When open interests have risen more than 20,000 trading units, the SFE will affect the LME," said Feng.
China launched zinc futures last Monday on the SHFE and the market is currently quite active, according to analysts.
China's zinc concentrate output hit 2.65 million metric tonnes in 2006, accounting for 25% of world production. Refined zinc output stood at 3.15 million metric tonnes, accounting for 30.1% of the world market, ranking first worldwide for the 15th straight year. Domestic zinc consumption remained at 3.35 metric tonnes, accounting for 30% of the world market, making China the world's largest consumer for the 7th straight year.
Zinc futures on the Shanghai Metals Exchange closed down 1.88% after zinc prices fell on the LME overnight on fund liquidation. The July delivery fell RMB550 ($71.17) closing Tuesday at RMB 28,780 ($3,724.26).
"The market hasn't attracted speculators yet and most of the participants are traders in spot markets," said analyst Shi.
The market's open interest stood at 10,368 contracts at the close of trading on Tuesday. SHFE prices will start to affect LME prices if open interest reaches more than 20,000 contracts, according to professor Fen Juncong, at Beijing Antaike Information Development Co., Ltd.
http://www.resourceinvestor.com/pebble.asp?relid=30521
By Interfax-China
03 Apr 2007 at 08:36 AM GMT-04:00
SHANGHAI (Interfax-China) -- Zinc prices may decline after a peak in early 2007, but will still remain at around $2700 per metric tonne on the international market and RMB26,000 ($3361.69) per metric tonne on the domestic market due to increasing supply, according to several analysts at the Zinc Futures Introduction on Shanghai Futures Exchange.
"The slow down in the global economy, a rise in raw material prices, China's increasing exports and expanding smelting capacity, a temporary rise in stockpiles and falling demand will all have an impact on this year's zinc prices," said professor Feng Juncong at Antaike Information Development Co. Ltd., a state-owned nonferrous metals information provider.
China's zinc output may rise by 400,000-500,000 metric tonnes this year to around 3.55-3.7 million metric tonnes. China's apparent zinc consumption is set to grow to 3.65 million metric tonnes from last year's 3.39 metric tonnes, Feng told Interfax.
While zinc output and consumption figures for 2007 show that supply has increased, Feng stressed that there will still be a global shortfall of approximately 100,000 tonnes this year.
Part of the reason for the increased domestic zinc supply last year was as a result of secondary zinc production, facility upgrades and more tailing ore utilization following last year's increased zinc prices. Zinc production from tailing ore, which is a relatively high cost process, will decrease in line with the predicted fall in zinc prices. The use of tailing ore increased China's zinc production by 100,000 tonnes last year, Feng said.
In accordance with the Chinese government's controlling policies released last month, small and outdated mining capacity will be gradually phased out this year. New lead and zinc mines will be blocked if their annual capacity is under 30,000 tonnes and the service period is less than 15 years.
China's zinc exports surpassed imports for the first time last October, a consequence of the price difference between domestic and overseas markets.
Feng predicts that China's zinc imports and exports will fluctuate over the next few months, but China will still remain a net zinc importer this year. Zinc concentrate imports will rise by approximately 200,000 metric tonnes this year, regardless of temporary fluctuations.
High raw material prices lead to frenzied zinc mine investment by major zinc companies last year, including Chihong Zinc and Germanium and Huludao Zinc. Zinc smelters also expanded production.
Chihong Zinc and Germanium Co. Ltd., the listed subsidiary of Yunnan Metallurgical General Company (YMGC), issued an additional 35 million A-shares to YMGC for the acquisition of the Zhaotong lead & zinc mine. Huludao Zinc Industry Co. Ltd. will issue 300 million additional A-shares in an effort to raise RMB 120 million ($15.19 million) to purchase a lead and zinc mine in Tibet.
China's expanded zinc capacity will reach optimum capacity this year, while the number of new zinc projects is predicted to decrease. 313 zinc mining projects were under construction or expansion last year, with 218 newly constructed, among which 23 had investments over RMB 100-500 million ($12.94-64.68 million). Most of the new projects were in Inner Mongolia, Yunnan Province, Hunan Province and Gansu Province, Zhao Cuiqing with the China Nonferrous Metals Industry Association, said.
Zhao added that China has recently promoted zinc imports over exports and encouraged domestic zinc miners and smelters to develop overseas resources. Since September 2006, the tax on zinc exports has been set at 5% and the zinc export tax rebate has been cancelled for grade <99.99% zinc.
Global zinc output increased 4.2% in 2006 and is predicted to increase an additional 5% this year, according to figures released by the International Lead & Zinc Study Group (ILZSG). Antaike predicts global output will rise more than 7%.
China's zinc smelting capacity will increase 200,000 metric tonnes this year, following a 2006 increase of 400,000 metric tonnes in 2006. China produced 3.96 million metric tonnes of zinc in 2005.
China was a net importer of refined zinc last year, with net imports totalling 191,000 tonnes in 2006, down 59.7% from the previous year.
China reported a zinc export increase of 404.9% to 119,292 metric tonnes in January and February, while zinc imports fell 61.7% to 21,442 metric tonnes, according to statistics released by the General Administration of Customs recently.
Zinc prices have increased 137% as a result of good fundamentals, expectation of China's growing demand, insufficient supply of zinc concentrate and fund speculation, Feng said.
Zinc futures have risen in the past two years due to high demand, economic growth in western countries and insufficient global raw material supply caused by underinvestment in the mining industry. Falling stockpiles, a weak dollar and fund speculation have also increased zinc prices, she added.
"Investment banks began to approach me in October of 2005 with questions concerning China's zinc industry," Feng said.
Feng said China's zinc exports and demand will dominate world zinc prices in 2007. China's industrial policy movements will impact the world market.
The launch of zinc trading on the Shanghai Futures Exchange (SHFE) will allow interaction with the world market. "When open interests have risen more than 20,000 trading units, the SFE will affect the LME," said Feng.
China launched zinc futures last Monday on the SHFE and the market is currently quite active, according to analysts.
China's zinc concentrate output hit 2.65 million metric tonnes in 2006, accounting for 25% of world production. Refined zinc output stood at 3.15 million metric tonnes, accounting for 30.1% of the world market, ranking first worldwide for the 15th straight year. Domestic zinc consumption remained at 3.35 metric tonnes, accounting for 30% of the world market, making China the world's largest consumer for the 7th straight year.
Zinc futures on the Shanghai Metals Exchange closed down 1.88% after zinc prices fell on the LME overnight on fund liquidation. The July delivery fell RMB550 ($71.17) closing Tuesday at RMB 28,780 ($3,724.26).
"The market hasn't attracted speculators yet and most of the participants are traders in spot markets," said analyst Shi.
The market's open interest stood at 10,368 contracts at the close of trading on Tuesday. SHFE prices will start to affect LME prices if open interest reaches more than 20,000 contracts, according to professor Fen Juncong, at Beijing Antaike Information Development Co., Ltd.
T
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
