We’ve talked a lot about the China SRB (State Reserve Bureau) buying up a number of metals, in particular copper and aluminum primarily as a means to prop up local producers but also for re-stocking purposes. But the SRB has also actively bought up zinc which closely follows the steel and automotive markets. Both copper and zinc are pouring into China because of these SRB programs. Zinc imports to China hit a 77,000 ton high in February (registered as a high over the last few years). In addition, all this buying at premium prices has created a very large arbitrage opportunity between the Shanghai Futures Market where prices closed on March 30 at $1848/ton vs. $1280/ton on the LME.
Our price predictions for 2009 called zinc at between $1050-1250/ton range on the basis of a large and growing stockpile of inventory (approx 280,000 tons). LME inventories recently peaked at about 360,000 tons and are now coming back down due to the buy-up of metal in China. This chart from MetalPrices.com shows the last 6 month inventory levels:
Glencore announced it would close its largest zinc mine in Peru because of falling prices. Mine closures continue (as do new projects) such as this one from Terramin Australia to develop a zinc mine in Algeria. Despite the price upticks and re-stocking, we still don’t see zinc moving up until demand supports higher prices.