LONDON, July 20 -- The fundamentals of the global zinc market remain poor and prices will fall further to reflect this, some analysts say.
"The fundamentals are awful and as we move through the summer I see more downside potential for prices," said independent consultant Angus MacMillan.
He expected prices to fall to $1,600 a tonne, and possibly further to $1,500, where he anticipated good support.
At 1107 GMT the London Metal Exchange three-months price <CMZN3> was indicated at $1,835 a tonne.
Giles Lloyd of industry consultants CRU Group said he expected $1,500 to act as a floor to prices, with declines to that level prompting sizeable production cuts, particularly at high cost mines in China.
Previously, CRU had thought prices could fall as far as $1,100 before that would happen.
But Neil Buxton, managing director of GFMS Consulting, was less certain that prices would fall further. Nevertheless he still expected inventories to accumulate further on rising production and uninspiring demand.
Below are some of the more significant recent developments in production, stocks and prices that may continue to influence the direction of the market in 2010.
June 16 - The global zinc market was in surplus by 180,000 tonnes in the first four months of the year, the Lisbon-based International Lead and Zinc Study Group's latest monthly bulletin showed on Wednesday. Global refined zinc use was 3.941 million tonnes compared with 3.197 million in January-April 2009. World refined zinc output rose to 4.121 million tonnes from 3.456 million a year earlier.
June 14 - Workers at metals producer Doe Run Peru began a protest demanding the company resume production at its La Oroya smelter, which has been offline for a year due to financial troubles. The Peruvian government said Doe Run Peru must restart the plant by July 24 or it will shut down the smelter for good.
June 11 - China produced 2,056,000 tonnes of refined zinc in the first five months of the year, up 34.6 percent from a year earlier, according to the National Bureau of Statistics. Output of mined zinc rose by 44.1 percent over the same period to reach 1,376,000 tonnes. [ID:nAPI000615]
June 4 - Nyrstar <NYR.BR> is confident it will be able to announce another mining acquisition at the end of July, its chief executive told Belgian financial daily De Tijd. The company's drive to expand into mining has so far resulted in Nyrstar acquiring mines or buying stakes in them in the United States, Greenland and Peru. It has also reached an agreement to buy zinc concentrate from Finnish group Talvivaara <TALV.L> in a multi-year deal.
Analysts widely believe that zinc has among the worst fundamentals of the metals in the LME complex. Hence it is perhaps no surprise that it has been its worst performer so far this year.
LME three month zinc prices on an official kerb close basis fell 24.63 percent at the end of the second quarter from the first quarter. They were down 30.08 percent from the end of 2009.
LME zinc prices ended June at $1,792.50 a tonne, down from $1,936 a month earlier.
As with other industrial metals, sentiment was undermined by worries about euro zone debt contagion and continued robustness of Chinese demand.
By June 7, three-months zinc prices had fallen to $1,577 a tonne, their lowest since late August 2009.
The market rebounded from those lows, but demand concerns have tended to limit gains and prices so far have run out of steam around $1,900 a tonne.
In January, the twice-yearly Reuters base metals price poll [MET/POLL] put the median average for the LME cash zinc price <MZN0> at $2,293 a tonne in 2010.
Compared with the sharp increases seen in May, LME zinc stocks moved little in June. They ended the month at 616,900 tonnes, down from 620,200 tonnes at the end of May.
On June 28, they dipped to 615,650 tonnes, but showed no inclination to move lower still.
Inventories have barely moved in early July.
Stocks of zinc held in Shanghai warehouses fell by almost 40,000 tonnes to 255,265 tonnes.
Western world commercial stocks of refined zinc totalled 978,200 tonnes or 7.7 weeks of demand at the end of April, compared with 975,000 tonnes or 7.6 weeks at the end of March and 923,000 tonnes or 8.0 weeks at the end of 2009.