Zinc is not a lagging indicator of steel demand but a precursor to it.
I.e. you must buy zinc first to produce galvanized steel - it's major use.
The answer then lies in the outlook for steel demand. New markets in China & India for zinc based fertilizers will certainly help.
This is an excerpt from The Economist on Steel demand.
Based on provisional full-year data, the Economist Intelligence Unit estimates that global steel consumption growth slowed from 14.9% in 2010 to 6.7% in 2011. Growth is forecast to slow in 2012, to just 4.4%, based on the prospect of weaker steel demand growth in China and minimal growth in the OECD.
This is why zinc is has been flagging since November last year.
Chinese demand thus holds the key.
Chinese GDP growth is forecast to slow in 2012, to just over 8%, but steel consumption will be more affected as the slowest sectors of the economy are likely to be construction, infrastructure and capital investment, which account for around two-thirds of Chinese steel consumption. We therefore forecast that Chinese steel consumption growth will slow to 5% in 2012, although the risks are on the upside depending on the scale and direction of any monetary loosening in China. Although we expect strong infrastructure development in some emerging markets in 2012, the weakness in mature economies will see global steel consumption growth excluding China at just 3.9% in 2012. We expect global crude steel consumption growth to pick up in 2013 to 5.4% as economic growth in mature economies starts to recover and growth in emerging markets remains strong.
We have already seen steps by the Chinese to loosen monetary policy. This indicates that zinc demand will pickup from March 30 to October 30 and then again by more in 2013.
- Zinc surplus 2011 (production vs usage) = +353,000t
- Zinc surplus 2012 (forecast by ILZSG) = +135,000t
KZL Price at posting:
31.0¢ Sentiment: Buy Disclosure: Held
