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Gold/Mining/Energy : ZINC The base metal. News and Views. Symbol Zn -- Ignore unavailable to you. Want to Upgrade?

To: Stephen O who wrote (193)	6/15/1999 3:29:00 PM
From: Ray Hughes	Read Replies (1) \| Respond to of 3270

Stephen: Qualified forecasters of metals supply/demand and pricing have called for zinc supply to be about in balance with demand for 1999, e.g. Macquarie Bank saying "...zinc was the only metal to record a deficit in 1998 and expects this market to be in balance in 1999." (Mining Journal 30 April). "Balanced" markets are highly vulnerable to production shortfalls leading to deficit supply, and price surges. As you well know the Huludao smelter in China is experiencing insufficient supply of zinc scrap such that its production of refined zinc could fall as much as 100,000 tonnes below capacity. Additionally, Penoles in Mexico has been served an "emergency notice" (14 May Metal Bulletin) because children in Torreon were found to have lead poisoning from slag dusts. Penoles has been ordered to reduce #9 plant output by 50% and to shut the #8 plant completely. Penoles is ordered to immediately reduce production by 26%. The Torreon smelter produces 125,451 tonnes of zinc annually, so these closures could reduce Penoles' zinc production by about 33,000 tonnes over the balance of 1999. Further, Cominco and Marubeni are delaying the 120,000 tonne/yr. refined zinc expansion of the Cajamarquilla smelter. This reduces global zinc capacity for 1999 by another 60,000 versus earlier projections. Therefore, Huludao, Penoles and Cajamarquilla combined refined zinc production could be about 190,000 tonnes below earlier projections that were employed to forecase that supply would be in balance with demand. On the demand side, news that Japan's economy is again growing serves notice that Asian consumption of zinc could rise by well over the 6.6% earlier forecast by Brook Hunt Assoc. (Metals Bulletin 28 May). In that article BH "...sees few signs of (Japanese) improvement in 1999." Surprise, surprise! Furthermore, I project that zinc consumers will attempt to increase their own inventories of zinc to hedge against potential shortage. Consider that at a 1999 global zinc consumption of 8.1 mil. tonnes, if users hoard just an additional 2 days of consumption, they would add 45,000 tonnes to inventory. I believe no forecaster takes this potential additional demand into account in forecasting demand. Summary: if refined production falls 190,000 tonnes below earlier forecasts and users hoard 45,000 tonnes, the "balanced" supply/demand turns into a 235,000 tonnes deficit. Any wonder why LME zinc inventory fell a whopping 3,075 tonnes yesterday? Could it be that this precarious "balance" is tempting speculators, i.e. Hedge Funds to accumulate zinc? I believe a modest actual zinc deficit could culminate in a big "run" on available inventory, resulting in a nice supply squeeze and big price run-up this autumn. RH