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26 June 2006
Australia's ABARE: Zinc prices may keep rising next year
Source: Dow Jones
Zinc prices are expected to surge 17% in 2007, adding to a forecast more than doubling this year as growth in global mine output continues to fail to match demand, Australia's government commodities forecaster said Monday.
Zinc is forecast to average US$3,500 a metric ton in 2007, up from US$3,000 in 2006 and US$1,382 a ton last year, the Australian Bureau of Agricultural and Resource Economics, or ABARE, said in its June quarter report. Spot zinc closed at US$2,940 a ton in London Friday.
"The rise in prices so far this year reflects a market characterized by slow growth in zinc mine supply, concerns over supply disruptions, strong global demand for zinc and low and steadily declining zinc stocks," ABARE said.
"Compounding these effects has been an increase in targeting of base metals such as zinc by investment funds and financial speculators," ABARE said.
A strengthening of world economic growth is expected to drive demand for galvanized steel, zinc's main use, in the construction and automotive industries in 2006 and 2007, ABARE said.
World production is expected to grow to 10.7 million metric tons this year, up from 10.3 million tons in 2005. A further rise in output to 11.2 million tons is forecast for 2007.
The gains aren't expected to be enough to cope with demand though, ABARE said.
World consumption is expected to rise to 11.1 million tons in 2006 and again to 11.4 million tons next year.
By Luke Burgess
BALTIMORE, MD -- Zinc prices have increased 71% in the past 6 months, 141% in the past 12 months, and 251% in the past five years making it one of the top performing metals. Will the trend continue?
After centuries of use, zinc has become one of the most important metals known to man.
The bluish-white metal is now the fourth most common metal in use -- trailing only iron, aluminum, and copper in annual production.
You see, the world needs her zinc because it plays an indispensable role in a wide range of industrial and consumer products.
The single biggest use of zinc is for galvanizing steel. Galvanized steel is standard cold-rolled steel coated with a thin layer of zinc. The zinc layer protects the steel from rust and corrosion.
You are no doubt surrounded by galvanized steel right now. Galvanized steel has long been one of the most used building materials in the world. In fact, U.S. consumes nearly 40 BILLION pounds of galvanized steel each year for a multitude of uses.
Zinc is also used for die-cast components, from door handles and carburetors on cars, to children's toy cars, and thousands of other products such as casings for electronic components.
Zinc is also alloyed with copper to make brass which is used in a vast array of products. The multitude of other uses of zinc includes sun screens, phosphors on TV screens, fireworks, paints, cosmetics and plastics.
This rapidly growing list of applications is steadily adding to the importance of zinc in the industrial world.
And with all these applications its no wonder why global consumption has been increasing steadily at an average of just over 3% a year.
Today the world demands nearly 16 billion pounds of zinc per year.
And because of the rapidly growing economies of China and India, global demand is expected to continue to rise. In fact, demand from China is now expected to be closer to 4% per year, rather than the 1.5% or 2.5% currently modeled.
As a result, the mining industry will need to bring on about 450 million pounds of new capacity each year just to satisfy the growth in demand. This won't be an easy task.
In addition to the 450 million pounds of new capacity required to meet the growing demand for zinc, the mining industry must also find and develop new mines to replace depleting mines.
Current projections show that about half of today's production will be depleted within the next decade.
Over the next few years, the zinc mining industry will need to bring on two new 200-million-pound-per-year mines each year to meet the growth in demand plus another couple of big new mines each year to replace depleting mines.
But because of years of underinvestment in the sector and the thinning supply of geologist who really know how to find a worthy deposit, that's not likely going to happen.
The zinc industry is highly fractured, with about 266 mines in production. Fewer than 20 of those mines produce more than 200 million pounds per year, a level that would be of any interest to a major.
Many of the smaller mines are in China, and are facing growing challenges to meet more stringent environmental and safety standards. So the future of the industry is heavily dependant on finding new deposits.
Zinc has few substitutes and could easily take out its old highs without too much dislocation in the economy.
A slowdown in the U.S. is always a factor when considering base metal prices, but America uses only about 11% of the world's zinc.
Furthermore, world population is growing at an exponential rate, creating more people thirsting for their first taste of Western living standards.
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