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Strategies & Market Trends : Commodities - The Coming Bull Market -- Ignore unavailable to you. Want to Upgrade?

To: craig crawford who wrote (267)	6/15/2001 7:00:03 PM
From: craig crawford	Read Replies (1) \| Respond to of 1643

Friday June 15, 11:52 am Eastern Time Zinc cuts seen inevitable on weak prices, demand biz.yahoo.com By Karen Norton LONDON, June 15 (Reuters) - Production cuts are inevitable in the world zinc market unless demand and prices rise rapidly, analysts said on Friday. But consumption was not seen reviving for several months as destocking of final and semi-finished products in the United States was set to continue, offtake was down in Japan and the outlook was unclear in Europe. Lawrence Eagles of GNI Research predicted mine and plant closures if prices remained below $950 a tonne level for another month or so. On Friday the London Metal Exchange (LME) three month price was indicated at $925, just above recent seven-year lows. Graham Deller of industry consultant CRU International said prices needed to fall to $875 before miners cut output because they had been insulated by the dollar's recent strength. Smelter closures were less likely, he added. Current prices were eating into a very flat part of the mine production curve, and a lot of miners were breaking even or making small losses on a cash basis. But ample concentrates would prevent mine cuts having an immediate impact on the refined metal balance, he added. Pasminco Ltd's (Australia:PAS.AX - news) Century mine in Australia and Ivernia West Inc's Lisheen deposit in Ireland were seen as the main contributors to rising output this year. Peru's Antamina project was expected to take up the reins in 2002. But cutbacks might boost market sentiment by signalling to consumers, who had been holding off buying, that downside potential was limited, Deller said. Eagles identified Cominco Ltd.'s (Toronto:CLT.TO - news) 290,000 tonnes per year (tpy) Trail zinc smelter in British Columbia as the prime candidate for a long-term shutdown. A series of curtailments and an extended summer closure already planned at the plant would reduce its output by 120,000 tonnes between last December and September 2001. The company had found it more profitable to cut output and sell excess power due to high electricity prices. SMALLER CHINESE PLANTS UNDER PRESSURE Eagles also saw smaller Chinese smelters coming under pressure from disappearing profit margins. On Thursday China's major zinc smelters said they had no plans to trim output this year and would sell more domestically. It would take time for any Chinese cuts to lead to slower exports due to stock accumulation in the first quarter, Eagles added. But he still saw them below last year's peak of almost 540,000 tonnes. Deller agreed that plants in China, as well as Russia, might curtail output because they would not be able to deliver metal into LME warehouses. Generally, however, smelters tended to raise output in times of falling prices because average production costs declined due to high fixed costs and low variable costs, he said. They could always deliver material onto LME warrant if they could not find a home for it, he said. In a recent report SG Securities noted that western smelter capacity was set to rise by five percent this year, with expansions in Spain, South Korea and Brazil. Cutbacks at Trail and elsewhere would cut the average operating rate sharply but more were needed to prevent output matching last year's high levels, it said. PROLONGED SURPLUS SEEN Eagles did not see demand for zinc rising sufficiently to wipe out surpluses. ``There'll be a long wait before we see a significant recovery from here even if there is a strong global recovery.'' Analysts said a Ford Motor Company (NYSE:F - news) estimate of a 10 percent cut in its third-quarter North American vehicle production did not bode well. A recovery in the other base metals was seen as zinc's best hope, but upside price potential was still limited. Deller predicted the market would remain in over-supply for the next five years, recording surpluses of 125,000-150,000 tonnes this year and next. ``The pattern of the zinc industry is prolonged periods of deficit and, just when it's about to do something, equally long periods of surplus.''