Zinc market growth prospects dim, improvement seen in 2013: bank Washington (Platts)--25Jan2012/325 pm EST/2025 GMT
Short-term growth prospects for the zinc market are dim compared with other base metals, market analysts at BofA Merrill Lynch said Wednesday, adding that zinc's fundamentals are likely to improve by 2013.
"Zinc has one of the most disappointing growth profiles," the analysts said. "This is partially driven by more fragmented project ownership and the reduced focus on zinc by some of the [major miners] in recent years ... . Limited involvement by large industrial players may be one of the reasons scheduled production increases are relatively muted and delays are possible," they said.
Still, the metal is, relatively, a bargain buy. "Keeping also in mind that zinc barely trades above long-term prices and production costs, we believe the metal is cheap at current quotations from a medium term perspective."
But zinc's supply-side picture likely will strengthen by next year because of constrained mine production, BofA Merrill Lynch said, but it added a caveat. "We acknowledge that transparency in China's mining industry can be an issue and miners there have at stages been able to switch on production at relatively short notice."
The low growth potential of zinc -- and lead -- enhances the value of both metals from an investment standpoint, the bank said. "Given low production growth in the pipeline, particularly for lead and zinc in the coming years, we believe that these two metals offer value at current prices from a medium term perspective."
BofA Merrill Lynch noted that prices of both metals currently are close to their historic averages.
"Lead and zinc quotations are relatively close to inventory and price combinations seen in the past," the bank said. "Market participants are, for instance, not willing to pay the same kind of scarcity premium for these two metals as for copper." It added, however, that "with limited supply growth coming through in the coming quarters and demand in all likelihood continuing to expand, we believe zinc prices in particular could perform well."
The bank forecast the LME zinc price at $2,075/mt this year and $2,425/mt in 2013, listing three main drivers: zinc demand has been not been strong enough to push the refined market into a deficit; galvanized steel producers have been ramping up production to operate at record rates; and and mine supply has been relatively tight. "Concentrates supply is set to constrain refined zinc production, making a highly oversupplied market unlikely in 2012," the bank said. "Fundamentals are not extremely strong, but major oversupplies are unlikely."
BofA Merrill Lynch estimated the 2012 lead price at $2,200/mt and the 2013 price at $2,500/mt. "Demand has been rising in 2010 as battery shipments have picked up," the bank noted. It added that offtake rose in 2011 and that, given the continued steady activity in the automotive industry, this trend should continue this year. "Lead mine supply is not abundant and the scrap market is tight, so prices should respond to the better demand backdrop," BofA Merrill Lynch said.
It forecast a balanced lead market this year, on factors that include a "deterioration of the macro picture in Europe/US," destocking in China or higher Chinese lead exports.
