With falling demand from galvanizing and metal alloying in Europe and North America, and growth slowing in Asia it is no surprise stocks are rising and prices have slumped. In the face of such conditions miners and smelters are idling production capacity and postponing new projects still in the planning stage. The International Lead & Zinc Study Group (ILZSG) estimates the market will face a surplus of 150,000 tons this year and 330,000 tons next year. Prices have bounced this week but more as a reaction to western governments finally getting to grips with the banking crisis than a belief in an imminent return to the commodities super cycle. The ILZSG points to new production capacity coming on-stream in Iran, Japan, South Korea and Peru which will keep the market in oversupply for 2009.
However the short term outlook should not color the longer term view. As some mines move into lower grades and higher cost production capacity is closed, demand will begin to pick up on the back of a resurgent global economy such that in 2010 the metal is likely to move back into deficit. Although Chinese growth is expected to still be in the region of 7.6% next year, down from 13.2% this year it will take North America and Europe to move from a current decline of -2.2% and -3.0% before world demand begins to pick up according to the ILZSG. With most predictions of the western world economy being in recession until well into 2009 it is unlikely the mine and processing closures alone will have the effect of pushing up prices significantly. It would not be unreasonable to expect most economies to be coming out of recession by mid 2009, the US may be a little earlier, Europe possibly a little later. So zinc consumers could look to keep contracts on a short duration into next year and monitor trends in the market with a view to fixing part, or all, of their longer term requirements once the demand/supply balance heads back the other way. MetalMiner will ensure we continue to keep readers informed onÃ‚Â zinc trends and events.