Hallgarten & Company's Christopher Ecclestone forecasts "zinc and lead could be back at the 90 cts level within weeks, and should end the year above $1 per lb."
In an analysis published Wednesday, Ecclestone said Hallgarten's 12-month outlook is for zinc to again reach $1.10 or slightly higher.
"Zinc is in a very delicate place," Ecclestone asserted. "Having just recovered last year from the mauling that sent it below 50 cts in the market meltdown of 2008, the zinc complex needed a sustained recovery in prices to tease projects off the drawing boards and into the financing phase. While some transactions went through the recovery phase most of these were on existing producing assets."
Proactiveinvestors recommends African Eagle: $8 billion of nickel and countingBaobab Resources in good company at Tete Iron Ore Project Buffett's good news for goldEcclestone suggested "zinc end users need to feel that there is some new production coming on three or more years out. Short of silver mines with strong zinc/lead by-product credits there is nothing between here and the horizon in terms of new production."
"This then implies that a shortage bubble is coming along and prices will spike again as they did in 2006/2007," he observed.
"We have no doubt that zinc and lead should both hit $1 per lb before the end of 2010, probably on opportunistic Chinese stockpiling and a desire by the Chinese to ensure that foreign miners stay in operation to provide them with fairly reliable supplies," Ecclestone advised.
For the fastest return on zinc investment, Ecclestone recommends the Zinc ETF "would look to be the way to play the bounce from recent lows."
In spite of the recent zinc price slump, Ecclestone predicted zinc production will be up this year "because of momentum from a strong finish to 2009 and the rising Zn/Pb output from the strong silver price and new productions in the Ag/Zn/Pb polymetallic category."
However, he cautioned "under this frothy layer primary base metal sources of Zn/Pb will be heading down as mines expire and no new production appears. This is where the real crisis is brewing."
In his analysis, Ecclestone suggested, "Merely the ongoing growth in China will continue to increase its share of global zinc consumption and its zinc output is clearly inadequate for its own needs." Like so many other key metals, the zinc price is subject to what Ecclestone called "market-making" by the Chinese.
"It seems the Chinese are more interested in orderly markets where Western producers get a fair though not outrageous return on their production than Western end-users that beggared a whole swathe of the base metals industry (leading to the annihilation of virtually all the US and Canadian majors) between 1983 and 2003," he explained.
"�Better the tender mercies of the Chinese than the gouging of Western industrials' should be the mantra of the surviving and up-and-coming base metals miners as they head into a new decade," Ecclestone suggested.
By Dorothy Kosich, Mineweb.com
KZL Price at posting:
56.0¢ Sentiment: Hold Disclosure: Held
