ZINC REACHING NEW HEIGHTS FUNDAMENTAL OUTLOOK ON ZINC

Transcription

1 ZINC REACHING NEW HEIGHTS FUNDAMENTAL OUTLOOK ON ZINC Disclaimer The report contains the opinions of the author, which are not to be construed as investment advices. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for the accuracy of the information presented herein or for the results of the positions taken based on the opinions expressed above. The above mentioned opinions are based on the information which are believed to be accurate and no assurance can be given for the accuracy of these information. There is risk of loss in trading in derivatives. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for any losses in trading. KARVY Comtrade Ltd. is engaged in commodities broking business in India. For opening a commodities trading account, contact , or any of the nearby Karvy branches. Mail us at commodity@karvy.com

2 Introduction Zinc is the 23 rd most abundant element in the earth's crust. Sphalerite, zinc sulfide, is and has been the principal ore mineral in the world. Zinc is the third most used nonferrous metal (after aluminum and copper), of which the U.S. consumes more than one million metric tons annually. In United States, about two-thirds of zinc is produced from ores (primary zinc) and the remaining one-third from scrap and residues (secondary zinc). Zinc is necessary to modern living, and in tonnage produced, stands fourth among all metals in world production - being exceeded only by iron, aluminum, and copper. Zinc usage ranges from metal products to rubber and medicines. About three-fourths of zinc used is consumed as metal, mainly as a coating to protect iron and steel from corrosion (galvanized metal), as alloying metal to make bronze and brass, as zinc-based die casting alloy, and as rolled zinc. The remaining one-fourth is consumed as zinc compounds mainly by the rubber, chemical, paint, and agricultural industries. Zinc is also a necessary element for proper growth and development of humans, animals, and plants; it is the second most common trace metal, after iron, naturally found in the human body. Applications Zinc is the fourth most common metal in use, trailing only iron, aluminium, and copper in annual production. Of the total zinc consumed, about 49% was used in galvanizing, 20% in brass and bronze, 14% in zinc-base alloys, 9% in chemicals and 8% in semi manufactures. A major sector in which it is used is shown in the following chart: End uses of zinc 9% 8% 14% 49% 20% Galvanizing Brass& Bronze Zinc Alloys Chemicals Semi Manufactures

3 Zinc is used to galvanize steel to prevent corrosion. Zinc is used in alloys such as brass, nickelled silver, typewriter metal, various soldering formulas and German silver. Zinc is the primary metal used in making American pennies since Zinc is used in die casting notably in the automobile industry. Zinc is used as part of the containers of batteries. Zinc is used in contemporary pipe organ building as a substitute for the classic lead/tin alloy in pipes. Zinc oxide is used as a white pigment in watercolours or paints, and as an activator in the rubber industry. Zinc chloride is used as a deodorant and can also be used as a wood preservative. Lotions made of calamine, a mix of Zn-(hydroxy-) carbonates and silicates, are used to treat skin rash. Zinc is used as the anode or fuel of the Zinc-air battery /Fuel Cell providing the basis of the Zinc Economy. Zinc production There are zinc mines throughout the world, with the largest producers being Australia, Canada, China, Peru and the U.S.A. Mines in Europe include Vieille Montagne in Belgium, Tara, Galmoy and Lisheen in Ireland, and Zinkgruvan in Sweden. Zinc metal is produced using extractive metallurgy. World Mine Production Major Countries Mine Production United States Australia 1,300 1,400 Canada China 2,300 2,300 Kazakhstan Mexico Peru 1,200 1,300 Other countries 2,400 2,800 World total (rounded) 9,600 10,100

4 World Resources: Identified zinc resources of the world are about 1.9 billion tons. 1,660,000 1,460,000 1,260,000 Zinc- World mine production by country In metric tons 1,060, , , , ,000 60, Australia Canada United States Kazakhstan India Russia Brazil Source: Bloomberg Zinc: Mine Production Thousand tons (Zinc content) Annual Totals Jan-Mar Europe Africa America Asia Oceania World Total Western World Total mine production of zinc is increasing with major contribution from Asia. If we compare mine production of period Jan to Mar in , it is clear that in comparison to last year, mine production had increased in Asia, Europe and Oceania by 19%, 6% and 3% respectively. The total world mine production had also rose to 9979 in 2005, up by 2% from 2004.

5 Thousand tonnes (zinc content) Zinc Mine Production Africa Europe Oceania America Asia Above graph clearly depicts the increasing trend in zinc production in Asian countries; however America and Oceania showed a slight decline in last 3 years. Mine production in Europe and Africa is almost stagnant in the same period. Zinc: Metal Production Thousand tons Annual Totals Jan-Mar Europe Africa America Asia Oceania World Total Western World In spite of rise in mine production, there is a slight decrease in metal production in Comparing the same period in , we found that there is increase in production in Asia and Africa, rest all other regions showed decline in production.

6 Zinc Metal Production Thousand tonnes Africa Oceania America Europe Asia Graph clearly shows the increasing trend in metal production in Asian countries, with slight decline in European countries. America, Africa and Oceania showed almost stagnant metal production in past years. Zinc: Metal Consumption Thousand tonnes Annual Totals Jan-Mar Europe Africa America Asia Oceania World Total Western World Metal consumption had declined in 2005, but if we compare same period Jan to Mar in , there is a sharp increase in metal consumption almost by 5%.

7 Zinc Metal Consumption Thousand tonnes Africa Oceania America Europe Asia The United States remained one of the leading consumers of zinc and zinc products. However, domestic metal production capacity, both primary and secondary, accounts for less than one-third of the quantity consumed domestically. Canada and Mexico are the leading sources of zinc for the United States because of their geographical proximity and because of trade agreements. Concentrate, metal, and scrap can be imported duty free from those sources. Events, Trends, and Issues: The zinc producers worldwide continue to benefit from a major price recovery that started in the third quarter of 2004 and picked up renewed momentum in the second half of World zinc consumption for the year 2005 was larger than world refined zinc metal production. Consequently, London Metal Exchange stocks were drawn down by more than 200,000 tons in These are both positive signs for continued strength of the zinc market well into Prices and Inventories movement /31/2005 2/28/2005 3/31/2005 4/29/2005 5/31/2005 6/30/2005 7/29/2005 8/31/2005 9/30/ /31/ /30/ /30/2005 1/31/2006 2/28/2006 3/31/2006 4/28/2006 5/31/2006 Price($/Ton) Inventory(Tonnes) Source: Bloomberg

8 Substitutes: Aluminum, steel, and plastics substitute for galvanized sheet. Aluminum, plastics, and magnesium are major competitors as die-casting materials. Plastic coatings, paint, and cadmium and aluminum alloy coatings replace zinc for corrosion protection; aluminum alloys are used in place of brass. Many elements are substitutes for zinc in chemical, electronic, and pigment uses. US Production and Use: The value of zinc mined in 2005, based on contained zinc recoverable from concentrate, was about $1.06 billion. It was produced in 5 States by 10 mines operated by 5 companies. Alaska, Missouri, Montana, and Washington accounted for about 99.9% of domestic mine output; the Red Dog Mine in Alaska accounted for 86% of total U.S. production. Of zinc metal consumed, about 75% was used in Illinois, Indiana, Michigan, New York, Ohio, and Pennsylvania, mostly by steel companies. Major co products of zinc mining and smelting, in order of decreasing tonnage, were lead, sulfur, cadmium, silver, gold, and germanium. Recycling: In 2005, an estimated 360,000 tons of zinc was recovered from waste and scrap; about 30% was recovered in the form of slab zinc and the remainder in alloys, oxide, and chemicals. Of the total amount of scrap recycled, 311,000 tons was derived from new scrap, and 49,000 tons was derived from old scrap. About 45,000 tons of scrap was exported, mainly to China, and 8,000 tons was imported, most of which came from Canada (84%). Import Sources ( ): Ore and concentrate: Peru, 61%; Australia, 22%; Ireland, 10%; and other, 7%. Metal: Canada, 60%; Mexico, 17%; Kazakhstan, 6%; and other, 17%. Combined total: Canada, 54%; Mexico, 16%; Peru, 14%; and other, 16%. Factors influencing prices In 2004, the zinc price at year end on the LME reached a 7-year high of $1, per metric ton, an increase of more than 20% from that at the start of the year. During the year, LME stocks have declined by about 17% to 634,000 tons. China reportedly was the major reason for the price increase as consumption has risen to about one-fifth of the world s zinc. China s demand had been forecast to grow between 11% and 18% in Because of increased demand in China, world consumption in 2006 is also expected to be about 285,000 tons greater than production. In 2006 also, it is predicted that demand for refined zinc metal in Asia will rise mainly as a consequence of further growth in China and rise in Japan, India, Indonesia, the Republic of Korea, Taiwan (China) and Vietnam. This, together with

9 an increase in demand in Europe and a recovery in the United States will result in an overall rise in world usage. With Olympic at door steps it is expected that zinc prices will further shoot up with increasing demand of steel. In infrastructure projects also, there will be high demand of steel which will further help in strengthening of zinc. If we will see production and consumption scenario, relatively consumption is more than production which will lead to further increase in zinc prices. Thus we can see that with the strengthening of economy along with all the above mentioned factors there will be further uptrend in zinc prices in long term. Outlook According to the International Lead and Zinc Study Group (2005), world demand for refined zinc metal is expected to rise by about 2.4% to 10.7 Mt in Expansions in China, India, Japan, Kazakhstan, and the Republic of Korea were expected to fuel this rise. Inventory will drop this year as demand outpaces supply from the world's mines. It is estimated that zinc use will exceed global production this year by 310,000 tonnes. The stockpiles monitored by the LME have declined by 40 percent in January to 375,750 tonnes. This imbalance could result in continued zinc price increase. Having taken into account trends in supply, demand and trade with anticipated releases from United States Defense National Stockpile, it is expected that there will be a deficit in the Western World refined zinc metal market which will further push up the prices. We expect the deficit to persist into 2007 also, implying a price peak this year and year to come. Zinc is already up by 19 percent this year. Taking into account all the above mentioned factors, zinc prices are forecasted to rise percent for the whole of Zinc prices are expected to touch 190 levels in long term. Trading tips on your Mobile. Subscribe to it today,

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