NEW YORK (Commodity news world ): The zinc market was characterised by another year of surplus in 2011, leading to reported inventories rising by almost a quarter. As a result, zinc lived up to expectations for it to be an underperformer, and the outlook for fundamentals in 2012 suggests that it will continue to underperform.
-Production is expected to grow strongly this year and, as a result, the market will likely remain in surplus. Indeed, there will be new highs for zinc inventories in 2012, making for a soft outlook for prices, especially in the first half of the year.
-The potential for a sharp slowdown in the Chinese property market is a risk for zinc demand this year, with residential construction accounting for just over 10% of Chinese zinc consumption. Demand from the sector may slowdown, but will still probably grow at a healthy rate, driven by an estimated 15% growth in property investment in 2012.
-The key swing factor for the zinc market outlook over the next few years is supply. While currently plentifully supplied, a medium-term concentrate crunch may be looming, although the timing and extent of this will be partly defined by prices (high prices will encourage marginal production).
The three likely causes for this shortfall are: mine closures (such as Brunswick 215Ktpy, Perseverance 135Ktpy); steep declines in ore head grades (the reason for the almost halving in Century’s production in 2014 to 290Ktpy); and an expected decline in Chinese production growth. This trio of supply issues may culminate in a rapid tightening in metal supply and a period of much higher prices starting 2013
Zinc prices are expected to average $1950/tonne in Q1, 2012
Source: Barclays Capital Research
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