Zinc set for 2006 shortfall, lead balanced-MBC
The zinc market is expected to register another deficit in 2006, while sister-metal lead is likely to be ...
The zinc market is expected to register another deficit in 2006, while sister-metal lead is likely to be broadly balanced, broker Mitsui Bussan Commodities (MBC) said on Thursday.
"A third consecutive significant deficit year is forecast for zinc metal in 2006, as concentrate shortages and China's domestic demand persist, depleting global inventories," MBC, a subsidiary of Japan's Mitsui & Co , said in a special report.
Lead will be broadly in balance over 2005-06, but current low inventories are likely to persist, supporting prices at historically high levels and maintaining the LME in backwardation, Michael Cuoco, MBC analyst said in the report.
In zinc, prices are unlikely to exceed $1,550 a tonne (70.3 cents/lb) for any prolonged period, despite the forecast deficit, as substantial investment buying may already have capped the upside in anticipation of improved fundamentals.
Chinese demand is consuming most of the unreported inventory which had accumulated following the 2001/03 surplus.
"This is expected to underpin the current level of zinc prices which have already risen under the influence of significant investment sector interest," MBC said.
Western world demand is expected to remain stalled at 2004 levels, with losses suffered from steel mill closures in 2005 being recouped in the year ahead.
On the supply side, without any major greenfield projects and with limited increases outside of China, world mine production has struggled to make gains in 2005.
"In 2006 the forecast gain of 5.8 percent results mainly from an expectation that miners worldwide will respond aggressively to the level of improved prices."
Global demand for refined lead is seen rising three percent in 2006 to 7.761 million million tonnes, spurred higher in China where usage is expected to increase by 11.4 percent.
Global refined production at 7.855 million tonnes will reflect some 51 percent recycled lead, as the industry sustains a 90 percent recovery level.
"While a surplus is expected in 2006, price declines are not expected until the second half of the year and LME cash is forecast to average $921 a tonne, (41.8 cents/lb)," it said.