Commodities | Jul 14 2006
By Terry Hughes
A combination of market tightness and China’s continuing expansion looks set to support zinc prices above US$3,000/tonne for at least the coming months, GFMS metals consulting analyst Peter Roberts says.
Although the metal lost 25% of its price in June, falling to US$2,940/tonne it then rose back up to US$3,300/tonne, due to tight market fundamentals.
Underlying demand has remained strong, while stocks have been falling, with GFMS pointing out that LME stocks have dropped by 46% in the year to date to a level of just 212,500 tonnes.
Meanwhile, the latest data shows that the zinc market was in a deficit in the first four months of 2006, with global demand rising by 3% to 3.594m tonnes, with Chinese demand the key reason for this, reporting year on year growth of 12.4%.
One of the key factors in this growth in China and across the Asian region generally is the rise in galvanised production. GFMS observes that zinc is likely to receive further support from this as a number of galvanised capacity increases are scheduled for the second half of this year.
But it is not just Asian demand that is supporting zinc prices, the analyst also points to firm European demand and an offtake from the US, which has reported year to date demand growth of 8.5%, as contributing factors.
Despite this increase in demand, production growth has been restricted by "insufficient advances in mine output," the analyst says, but also states that this situation is now being resolved.
Chinese production growth rates are expected to remain strong for the remainder of the year, boosted by further capacity increases, with anecdotal evidence suggesting China is returning to being a net exporter.
In the meantime, zinc’s fundamentals are seen as looking positive, and while the supply side remains tight and demand robust, the consultancy expects prices to be supported over the coming months and remain at high levels in excess of US$3,000/tonne.