MB -- Zinc sustains eight-month high 4/30/99 17:4
April 30 (Metal Bulletin) - Traders and chartists say that the
spike in the LME zinc market - which last week saw prices of
$1,080-1,090 per tonne basis three months for the first time in
eight months - could be sustained at levels of around $1,120-
1,150 per tonne if the current bullish tone can be sustained.
"The signals to buy are still very strong, so it is possible
that we can break $1,100 per tonne and even higher," one
trader said.
Despite this renewed optimism, there has as yet been no sign
that producers are buying metal, or that large, long positions
are being built. Rather, the main worry amongst market players
is that zinc has been dominated by purchasing from funds, banks
and speculative institutions, all of which appear to be paying
little attention to the fundamentals of the market.
Rekindled strength in the Asian market has brought fresh hope
that the worst of the economic crisis in the region is over,
and the funds attention has now turned to what they believe is
an undervalued base metals complex.
Robin Bahr, an analyst at Brandeis (Brokers) Ltd, said that the
latest change in market sentiment has come about even though
the zinc market's fundamentals are very similar to those
recorded a couple of months ago when the metal was struggling
to keep above $1,000 per tonne. "The trade is still pretty
uncertain and sceptical about this rally and it wants to wait
and see clear evidence of a change in market fundamentals,"
Bahr said.
"We are just riding the waves of this surge at the moment,"
agreed one trader. "It would be wrong to assume that LME zinc
is heading for $1,100 per tonne, and that the price is going to
remain there," he added. The market feels that it can hang onto
its $1,080 per tonne level for now but we will need help from
copper and aluminium to get zinc to break through further.
Singapore in-warehouse zinc premiums are meanwhile steady on
the back of the market rally. At least two major European
brokerages are said to be holding long positions in zinc and
are "squeezing" the market while attempting to bolster the
current rally by another $10 or more per tonne, according to
market sources.
It is believed several of the longs have been building
positions in Chinese zinc, although there are some Asian shorts
in the market who are waiting for prices to fall in order
cover. "Profit-taking will start at $1,100 per tonne," one
Singapore trader said.
Figures from the International Lead & Zinc Study Group released
recently will certainly have done no harm to the outlook of
zinc bulls with a forecast that world demand for refined zinc
metal will rise by 2.2% this year to 8.05m tonnes and in the
West by 1.8% to 6.61m tonnes. However, in Japan revised
forecasts show that a further fall is now expected in 1999.
This Japanese decline was underlined on the April 1 when those
concerned in the domestic commodities sector had opportunities
to buy duty free material under a general system of
preferences. Despite the incentive, zinc sales under the scheme
fell from 60,000 tonnes in 1998 to 19,000 tonnes in 1999.
This, however, should be balanced by a partial recovery in
Korea, further growth in China and an end to the decline in
other parts of Asia. Further growth of 2.5% is forecast in the
USA and 1.7% in Europe, fuelled principally by gains in the
galvanising and brass sectors.
On the supply side, zinc mine output is expected to increase in
1999, with rises of 6.1% to 7.75m tonnes globally and 6.8% to
5.99m tonnes in the West, with the largest gains to come from
the expansion of the Red Dog mine in 1998. Australia's Century
mine is also to open in the second half of this year. Increased
production in Ireland, Sweden and Spain will lead to a 9% rise
in Europe.
Output of refined zinc metal is expected to rise by 2.1% to
8.2m tonnes worldwide and by 3.3% to 5.94m tonnes in the West.
Much of the increase will be in Asia - especially in Korea,
Japan,Thailand, Iran and Kazakhstan. Output in Australia is
expected to rise by 10.9%, boosted by the completion of Korea
Zinc's 170,000 tpy Townsville smelter later in the year.
Even though the exact level of net exports to the West from
China in 1999 will be linked to international prices, present
indicators suggest a similar level to 1998. Shipments from the
CIS, however, are expected to rise. ILZSG anticipates that
there will be a close balance between overall refined zinc
demand and supply in 1999.
Paul White of ILZSG said that the outlook for Asia is positive.
"It looks like the decline in Asia - despite the reduction in
Japanese demand - will be arrested in 1999, thanks to recovery
in demand in Korea especially and throughout Asia overall," he
said.
Metal Bulletin newsroom, London Tel +44 171 827 9977 Fax +44
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