Bloomberg reported that Chinese zinc smelters are cutting the most production in at least 9 years after prices tumbled into a bear market, diminishing a glut that began in 2007.
According to Beijing Antaike Information Development Company, Output of the metal used to rust proof steel fell 6.8% in China in the first 7 months. The nation accounts for 40% of global supply, the Lisbon based International Lead & Zinc Study Group estimates. Prices will average USD 2,045 per tonne in the Q4, 10% more than the average since July 1 based on the median of 12 analyst estimates compiled by Bloomberg.
The metal traded below the USD 2,526 per tonne that Antaike estimates 79% of Chinese smelting output needs to break even since August 2011. Output has exceeded demand since 2007 after record prices in 2006 spurred more supply, driving London Metal Exchange monitored stockpiles above 1 million tonnes for the first time ever in July. The glut is now diminishing at a time when steelmakers, the biggest consumers, are projected to expand production to an all time high this year and next.
Mr Gayle Berry analyst at Barclays Plc in London who correctly predicted in February that supplies would tighten and prices rebound later in the year said that “Zinc smelters in China have been suffering a lot for quite a long time. The Chinese market has addressed the surplus and the supply cuts have helped to provide a floor to prices.”
Bank of America Corporation index showed that the metal fell 20% in 5 months to June 27, the common definition of a bear market. Zinc rallied 15% to USD 2,013 since then leaving it 9.1% higher this year and the best performing industrial metal. The Standard & Poor’s GSCI gauge of 24 commodities added 5.4% and the MSCI All Country World Index of equities advanced 10%. Treasuries returned 2%.
The supply surplus will contract 26% to 230,000 tonnes next year, the lowest since 2008, Morgan Stanley estimates. Barclays is predicting a 13% decline to 231,000 tonnes and Bank of America sees a shortfall of 141,000 tonnes. Standard Bank Plc reduced its projection for this year’s glut to 249,000 tonnes 35from 539,000 tonnes estimated in February.
Inventories tracked by the LME retreated 4.9% in August, the first monthly decline since November and orders to withdraw metal from warehouses almost tripled since June 27. Stockpiles monitored by the Shanghai Futures Exchange fell 23% since mid March.
The Brussels based World Steel Association estimated that about 50% of zinc is bought to galvanize steel, used in everything from buildings to roads to cars. Global crude steel output rose 0.8% to 895.4 million tonnes in the first 7 months from a year earlier. Production will reach an all time high of 1.56 billion tonnes in 2012 and 1.62 billion in 2013.
According to the Lead & Zinc Study Group, Chinese zinc smelters may start idled capacity should prices keep rising. Global output jumped almost 14% in 2010, the most since at least 1961, after LME traded futures more than doubled the previous year. Morgan Stanley expects mine production to expand in all but one of the next 5 years.
That may be less important than in previous years because prices are rising now in part because of a shortage of metal for immediate delivery. As much as 600,000 tons may be locked away in financial contracts, according to Citigroup Inc. The transactions typically involve a simultaneous purchase for nearby delivery and a forward sale for a later date. LME futures are in contango out to 2015 with prices rising throughout the period.
Source - Bloomberg
(www.steelguru.com)
