Zinc Surplus Keeps a Lid on Prices

By Leia Michele Toovey- Exclusive to Zinc Investing News

Zinc has been the metal to witness the biggest gains over the past month, rising 5.5 percent to beat out counterparts copper, aluminum, and nickel.

Still, although, zinc prices have fallen 29 percent in 2010, with current prices hovering dangerously near the cost of production. “The near-term outlook on (zinc) prices is generally sober until the first or second quarter of 2011. However, we do not see a price collapse,” said CPM Group commodity analyst Douglas Horn.

The reason why prices are so high is quite simple- there is plenty of the metal to go around. Global demand has failed to impress, and stockpiles are near their five year high. The latest report from World bureau of Metals Statistics showed that reported stocks rose by 246,000 tonnes with almost all of the increase recorded at exchange warehouses of the LME and Shanghai. LME stocks represented 73 percent of the global total.

The zinc market was in surplus by 241,000 tonnes during January to May 2010, compared to a surplus of 210,000 tonnes in total, last year. Mine production in the Jan-May period is up 11 percent, compared to the same time span in 2009. In 2010, global demand has improved compared to 2009, with 556,000 tonnes more zinc purchased in the year’s first five months. China is still importing an impressive amount of the metal, with most of it destined for stockpiles. As a result, so far in 2010 the country has accounted for 41 percent of global demand.

US premiums, the amount paid over the LME cash price to cover the cost of shipping and delivering metal, have risen some 50 percent since end-May. As a result, more than have of the current surplus of zinc is being stored in New Orleans, where demand is minimal.

With an ample amount of the metal to go around, why have the prices risen in the last month? The reason behind this is that there was a short supply in metal available for immediate consumption, which in turn created a temporary tightening in the supply demand balance.

With help from Assistant Editor Vivien Diniz