Analysts at Loggerheads on Zinc Consumption and Prices for 2008
By Ginger Ding
28 Nov 2007 at 10:26 AM GMT-05:00
resourceinvestor.com
NANJING (Interfax-China) -- Analysts at the 2007 China International Lead & Zinc Conference held in Nanjing on Sunday were not able to find common ground on zinc consumption and prices for next year.
Zinc prices will rebound to a maximum of RMB 27,000 ($3,654.97) per tonne next year on the back of increased consumption, with a bearish market set for 2009, an industry analyst told Interfax on Sunday.
"As long as consumption from zinc end-users, including the construction industry, doesn't turn sluggish next year, we believe the zinc market will recover from current lows and stage some kind of a rebound in the second quarter of next year. However, it is unlikely to recover its previous bullish trend," Beijing Antaike Information analyst, Feng Juncong, said.
"Current low zinc prices will boost domestic consumption next year, putting pressure on prices. Moreover, the Chinese government is considering implementing further restrictive export policies on zinc in an attempt to slow investment growth in the sector and curb the country's growing trade surplus, which will force domestic zinc smelters to cut production, lending further support to a high domestic zinc price," Feng said.
According to Antaike statistics, China's zinc smelting capacity is set to increase 150,000 tonnes this year and 350,000 tonnes next year, mainly due to newly commissioned operations in the Inner Mongolia Autonomous Region and Yunnan Province. However, large-scale capacity expansion will be limited by increasing production costs on the back of renminbi appreciation, resource tax increases, export tax rebate cancellations and new export taxes.
"Over 700,000 tonnes of new zinc smelting capacity will come online in China in 2009, and ample zinc supply from fully operational capacities, as well as an anticipated slow-down in consumption in the post-Olympic period, will drive down zinc prices in 2009," Feng said.
However, Xinguolian Futures Brokerage analyst, Li Junchao, put forward a different opinion. "China's zinc price will remain around the current low level, with only staggered rebounds next year. According to statistics from the International Lead and Zinc Study Group (ILZSG), China's zinc demand only increased 9.4% year-on-year in the first eight months of this year, much lower than the growth in refined zinc output, which increased 20.3% over the period, or the growth in zinc concentrate output, which grew 16%. Moreover, it is not likely that these surplus fundamentals will change much next year."
"Zinc smelting costs currently stand at between RMB 15,000 ($2,030.54) per tonne and RMB 16,000 ($2,165.91) per tonne in China. Domestic zinc prices are not likely to fall below these production costs next year, and are not likely to move above RMB 25,000 ($3,384.23) per tonne, which is lower than Feng's prediction. Moreover, zinc consumption may not increase much next year, as China's economy seems to be slowing," Yide Futures analyst, Guang Heping, said.
The benchmark three-month zinc price on the London Metal Exchange plunged from a high of $4,510 per tonne in November 2006, to become the most sluggish metal on the exchange in June this year. A panic over zinc oversupply caused shrinking fluidity, and led to LME zinc prices slumping to a low of $2,220 per tonne in November this year.
Zinc prices on the Shanghai Futures Exchange stood at around RMB 18,340 ($2,481.77) per tonne last Friday, down 36% from RMB 28,790 ($3,895.86) per tonne in late July, while the benchmark three-month zinc price on the LME stood at $2,287.5 per tonne last Friday, plummeting approximately 35% from $3,500 per tonne in late July.
After three years of serious supply shortages, the global zinc concentrate market is slowly coming back into balance. Antaike forecasts that zinc concentrate production will lift 9.6% from last year to 11.26 million tonnes this year, mainly from increased production in Bolivia, Australia, Canada, Peru and China, following a mining rush from last year when zinc prices were high.
Global refined zinc output is expected to reach 11.57 million tonnes this year, up 8.2% year-on-year, mainly on the back of increased production from China, India, South Korea, Russia and Spain. Meanwhile, output will reach 12.55 million tonnes next year, Antaike said.
Antaike also said that global zinc consumption is set to reach 11.54 million tonnes this year, up between 3.3% and 3.5% from last year, while consumption will rise to 12.12 million tonnes in 2008.
Increased demand from China and India is likely to offset sluggish demand from the United States and Europe, in the aftermath of the sub-prime loan crisis. Zinc consumption in the United States is set to fall 7% year-on-year this year, Antaike said.
According to research from CRU, Brook Hunt, ILZSG and Barclays Capital, global refined zinc oversupply will reach 72,000 tonnes this year, and increase to 225,000 tonnes next year.
© Interfax-China 2007. For more intelligence on Chinese metals and mining, contact David Harman in Hong Kong at david.harman@interfax-news.com or (852) 2537-2262. |
