Zinc is one of few commodities that appears to be bucking the trend of relentless price increases. The metal has come off from USD 4260/ton last year to below USD 2300/ton this year driven by a perception that supply exceeds demand. Where will it go from here?
Zinc consumption has been increasing at something like 3% globally although as you can imagine, demand has not been uniform. China, the world’s largest producer of concentrates (27%) and of refined Zinc (30%), has increased consumption by 15.2%, ahead of India at 7% and Europe 2.3% according to the International Lead & Zinc Study Group, more than off- setting a drop in demand from the USA, Japan, South Korea, Taiwan and Australia. At the same time, production has been rising at 5% wiping out a deficit of 352,000 tons in 2006. Consequently, world stocks have been steadily rising from 459,000 tons in 2007 to over 700,000 tons this year, according to www.abareconomics.com. Mirroring this, LME stocks have risen 46% year on year from 89,000 tons to 130,000 tons today.
New mines came on stream last year in Peru and old mines were re-started in the US. In addition, decisions were taken on new facilities in Finland and Mexico which will add another 200,000 tons per annum of production this year. New production facilities at Vedanta Resources, India and elsewhere have also come on stream this year. So production is up and consumption is slowing; does that mean prices have further to come off? Probably not, it looks like this supply balance has been factored into the current prices and all other things being equal (no general collapse in commodity prices, no flight of investment funds, major power shortages or strikes ” a big list!) prices will most likely stay around current levels for this year and well into next.
The China National Development and Reform Commission has set out a number of standards that facilities will be required to meet in the future which could reduce production in China and/or raise costs. Price support is seen more from production restraints and threats than a belief that demand is going to suddenly improve. Zinc is used in many applications but the principal ones, galvanizing steel and alloying with copper both have high exposure to the automotive and construction industries. No surprises then that demand is down in the West and up in Asia. We don’t see the situation improving this year in the West but there could be some cooling in the Chinese and Indian economies as demand softens in Europe and continues subdued in the US. Although we expect demand in China to remain robust it will most likely come off the highs seen last year and during the first quarter of this year. We expect Zinc to be trading in the USD 2200-3000/ton range this year rather than testing the USD 4000/ton levels of last.
There was a time when if the price of a metal doubled in a year it would be the stuff of headlines. Not only trade journals, but newspapers and even TV channels would post features on the dramatic price rise and the ensuing calamity that was likely to follow ” whether it be a crash in the price or consumers being forced out of business. Nowadays we appear hardened to trebling or even quadrupling of prices in a single year such is the bull market that has prevailed this decade. So as the price of manganese has doubled in the last 12 months maybe we can be forgiven for not having taken too much notice. Read more
There is an interesting debate going on in the aluminum world that is quite probably being mirrored across other metals categories, namely – which way will the price for semi finished metals go the balance of this year? Aluminum semis prices are driven largely by the ingot price but also by the premium mills can charge for the particular product ” plate, bar, flat rolled, sections, foil, etc.
First, the ingot price. Read more
Shipping Lines use the same principles of supply and demand to judge freight rates as does any other business. Typically a
route in one direction is more popular than the reverse. For example containers travelling from China or Europe to the USA, bringing in finished goods, commanded a higher rate than the same containers being sent back to those overseas markets.
Shipping lines are keen just to re-position the container back to where the demand is greatest ready for the next load and
would happily take low value cargo (at low rates) like metal scrap just to cover the cost of returning the container. The US
demand for imports over the last 10 years has made this a steady one way bet, until about 12 months ago according to the the Wall Street Journal. Read more
It was meant to come to market in 2006, then in 2007 and with much anticipation in Q1 2008. I speak of course of the NYMEX HR steel futures contract. But the start date has been put back yet again. Meanwhile the LME steel billet contract has got off to a quiet but solid start in London back in February. It will go live later this month. Further shapes and grades are being added as the contract gains popularity but meanwhile North American buyers will have to wait a while longer for the proposed start date of their HR coil contract. Read more
With both global prices and sales of steel steaming away over the last twelve months, the sometimes overlooked stainless market has been quietly contracting. The market contracted by 2.9% in terms of production last year to 27.6 million tons according to the International Stainless Forum. But the reasons for the decline – a sharp fall in nickel prices, appears counter-intuitive to us. We expected the fall in stainless demand in the second half of 2007, due to the rise in nickel prices in the first half of the year, as manufacturers switched from stainless to other products. There is a lag in these situations and production is hit only 6-9 months after the price spike. Western Europe and Africa reported a 13.3% decrease in stainless steel production to 8.7 million tons during 2007 while the Americas reported a 15.2% decrease in production to 2.5 million tons.
Asia, on the other hand, saw stainless steel production rise 6.3% to 16 million tons in 2007. China is now the world’s largest producer. Its production rose 36% to 7.2 million tons. While at the same time, the Chinese government has actively tried to curb exports of semi finished steel products by adjusting the incentives and penalties for exports. The result has been a decrease in exports of semis and an increase in exports of stainless containing components and products. Read more