(MB) - Zinc market in large surplus
2001-10-24 17:02 (New York)
October 24 (Metal Bulletin) - A 260,000-tonne surplus of zinc
is expected next year, Louise Mortiss, analyst at Metal
Bulletin Research told delegates at the Metal Bulletin Base
Metals Concentrates Seminar in London.
Lower demand for galvanised steel and HDG coil, coupled with an
increase in Western World mining and smelting capacity of
around 3% each, has placed continued pressure on zinc prices.
MBR is expecting an average spot price of around $840 per tonne
in 2002 compared with $890 per tonne this year.
"The zinc price recovery will need to be demand-led to reduce
the stock overhang," Mortiss said, adding that a price rebound
is unlikely until 2003. A sudden rebound in consumption in two
years' time after production cuts made over the next 12 months
has the potential to produce a sudden price turnaround, she
said.
Three-months zinc closed at $778 per tonne on the LME on
October 24 and forecasts during the LME Week in London were
gloomy. At the LME Seminar in London on October 22, Man
Financial analyst Fred Demler also forecast that zinc prices
will continue to slide as the market remains in surplus.
The outlook for all metals has become more bearish since the
terrorist attacks in the USA on September 11, which put the
prospects of recovery back by six months. The latest
indications are for an economic recovery starting in the second
quarter of next year and a return to positive growth only in
the third or fourth quarter, Demler said.
Zinc prices have been moving "on a downward trajectory", with
the spot price now testing $750 per tonne, Demler said. "On a
real basis zinc prices are treading all-time lows, on an
adjusted basis near 1980s lows."
Historically zinc consumption has moved ahead of industrial
production growth, but recently zinc consumption has been
growing more slowly than IP, which indicates destocking, Demler
said. He forecasted strong growth in zinc consumption for the
end of 2002.
Zinc mine production has surged, with new production outpacing
cutbacks. Demler said cuts are inevitable, and Pasminco will
probably be the first to curtail output. Citing CRU research,
Demler said at current zinc prices only around 30% of world
capacity could be making a profit, and less than 50% is
covering costs.
Zinc stocks average 6.4 weeks' usage, but could rise to 7-9.5
weeks unless cutbacks occur, which in turn could push the zinc
price towards $600 per tonne. Demler expects the spot price to
test $700 per tonne in the near term, but rebound to $900 per
tonne at the end of 2002, with zinc consumption forecast to
bounce by 4.5% in the fourth quarter.
Overall, he estimates a 1.5% fall in zinc consumption this year
and a 1.2% rise in 2002, resulting in an estimated 258,000
tonnes surplus this year and a 308,000 tonnes surplus in 2002.
Earlier this month, analysts at HSBC lowered their average zinc
price forecast for 2001 from 42 cents per lb ($925 per tonne)
to 41.1 cents per lb ($906 per tonne). "We continue to believe
that commodity markets will disappoint over the coming months,
and do not expect a sustainable recovery in prices until H2
2002 at the earliest," HSBC said.
The forecast price for 2002 has been reduced from 44 cents per
lb to 43 cents while the forecast for the 2003 price has
remained at 52 cents.
Analysts said that unless substantial production cuts are
announced soon, the zinc price could continue sinking towards
unknown new lows. Cuts ought to be at the forefront of the
smelters' minds as at current spot prices over 40% of zinc
production is now loss making on a cash-cost basis, according
to Macquarie Research.
"Nearly 20% of production is what we have termed 'significant'
loss making - cash costs over $100 per tonne [4.5 cents per
lb] higher than spot prices," said Macquarie.
"A further 10% fall in LME prices would leave nearly 75% of the
industry losing money on a cash cost basis, and nearly 40% of
the industry 'significant' loss making."
Meanwhile, the International Lead & Zinc Study Group (ILZSG) is
also expecting to see a "a substantial surplus" of refined zinc
in both 2001 and 2002.
The scale of the surplus in 2002 is currently estimated at
about 500,000 tonnes but could be reduced if present production
plans are curtailed as a result of low price levels, the ILZSG
said. Refined zinc metal production is expected to increase in
2001 by 4.1% globally and by 2.9% in the West, and by a further
4.6% and 5.6% respectively in 2002 according to the latest
figures from the group.
World zinc mine output is expected to rise by 4.7% in 2001 and
a further 2.5% in 2002. In the West increases of 3.6% and 2.9%
are anticipated. Global usage of refined zinc metal is expected
to contract by 0.7% in 2001 and by 3.1% in 2002. The fall in
2001 will be heavily influenced by a predicted 10.7% decrease
in the USA.
In 2002, however, usage is forecast to increase by 1.8%
worldwide and by 1.3% in the West with a recovery of 3.6%
predicted for the USA. "Demand in Asia is expected to continue
to grow, by 2.8% in 2001 and 2% in 2002, primarily as a
consequence of further increases in China," the ILZSG added.
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