Zinc refuses to be left behind

While attention has been focused on the price of copper of late, another base metal has been showing its strength. Zinc is on the move after a summer lull, the spot price of the metal recently hitting 78 (US) per lb on the London Metal Exchange (LME).

A strong demand coupled with falling inventories has helped to increase the price of the metal to higher levels. Also, a miners’ strike in Peru is contributing to a shortfall of zinc, with some analysts predicting a drop in production of the metal in that South American nation of as much as 25%.

Two industries, automobile and construction, are reportedly playing a big role in the metal’s continued high consumption. Zinc’s major application is as a galvanizer (rust prevention) for iron and steel products; in the United States, it is estimated almost 50% of the metal is consumed as a galvanizing agent.

Averaging about 52 on the LME after 10 months this year, zinc averaged 36 in 1987 and 34 in 1986.

Metals Week recently listed a number of reasons for the rise in the metal’s price, including the strike in Peru, Chinese and Russian buying, and delays in Mexican shipments because of the damage caused by Hurricane Gilbert. The Chinese, the New York publication says, are apparently continuing to shop for the metal. Falling inventories

Stocks equal to 575,000 tonnes of the metal, representing about six weeks consumption, were all that existed at the end of 1987, following a massive drawdown in inventories, Shearson Lehman Hutton reported recently. The international securities firm predicts that record non-communist world demand and higher socialist purchases, combined with all of the supply disruptions, will result in an undersupplied market again this year.

“We project a deficit of 118,000 tonnes that should take the stock consumption ratio to below five weeks by the end of the year,” Shearson reports. “Our forecast of a further, although smaller, deficit in 1989 will keep the pressure on zinc prices.”

According to the research department of Barclays de Zoete Wedd of London, the potential exists for a major hike in the price of zinc. The company foresees a balanced market in the metal for the rest of this year and in 1989, with stocks staying depressed.

“Given the low level of stocks, if supply exceeds demand, stocks will rise only slowly, and the price fall by only a small amount. On the other hand, if consumption exceeds supply, the zinc price will rise rapidly,” writes Barclays.

Non-communist world consumption of the metal is expected to increase by 2.3% this year and 1.2% in 1989, Barclays forecasts. Flat European consumption is expected to be offset by higher Asian and American demand. Galvanized steel

Barclays foresees the amount of zinc used in the galvanizing of steel for the automobile industry rising (that is, more galvanized steel being used than non-galvanized steel), even though vehicle production is expected to remain steady. In the construction industry, more galvanized steel is finding its way into reinforced concrete and into the roofing business, particularly in the warmer climes.

On the supply side, Barclays predicts static output. Mine closures of the last few years include Cominco’s Pine Point and Rammelsburg in Germany; the only one major property coming into production in the early 1990s will be Cominco’s Red Dog project in Alaska.

For 1988, Barclays is forecasting an average price of 54 , with a 60 price predicted for 1989. Shearson’s estimate for this year is the same, but it expects the zinc price on the LME next year to average 58 *

Mine output of zinc in 1987 by non-communist producers totalled about 5.2 million tonnes. Among world producers that year, Canada, at about 1.3 million tonnes, was the leader, followed by Australia and Peru.

Recently announcing expansion by 50% of its zinc oxide operations at Hillsboro, Ill., was Asarco Inc. of New York.

Construction of a new French Process furnace will increase production by 7,000 tons per year, raising the facility’s annual capacity to 21,000 tons. Installation of the furnace is expected to be completed during the first quarter of 1989.

A company official estimated about one-third of U.S. consumption of zinc oxide last year was met by imported material.

The New York Commodity Exchange (COMEX) has decided it will list all 1989 delivery months of the Grade 2 (standard) copper futures contract.

Earlier this year, when COMEX introduced trading in High Grade copper, it said it would de-list certain 1989 months for delivery of Grade 2 copper. The spot month and the following two months will now be listed, and any 1988 or 1989 Grade 2 contract months for which open interest becomes zero will continue to be listed until the usual last day of trading.