Isra-Mart srl:Major market developments in August

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Zinc prices fell sharply in early August and, while losses were partly recouped later in the month, disappointing demand and a rising supply surplus could keep the market under pressure in coming months.

"You have to be nervous about demand, it's not disastrous, but it's worse than expected and not showing any signs of strength," said Graham Deller of industry consultants CRU Group.

As a result CRU's supply surplus forecast for 2011 could rise from half a million tonnes to as much as 600,000 tonnes, he added.

Fastmarkets analyst Will Adams said prices were in a downtrend and could fall to $2,000 a tonne if the global economic picture continued to worsen and further dented demand.

The London Metal Exchange (LME) three-months zinc price was last indicated at $2,216 a tonne.

But some thought the downside for zinc was limited.

Standard Chartered analyst Dan Smith said most of the bad news for zinc had been priced in.

"Based on the assumption that economic recovery is on the cards I think zinc represents good value at these prices," he said.

Below are some of the more significant recent developments in production, stocks and prices that may continue to influence the direction of the market in 2011.

PRODUCTION

Aug 29 - Terramin Australia said the processing plant at its Angas lead-zinc mining operation was fully operating after repairs following an electrical incident. It said the loss of output meant it had cut its full-year production forecast by 4 percent to 45,000 tonnes of zinc concentrate, while it expected to meet its full-year forecast of 18,500 tonnes of lead and precious metals concentrates.

Aug 23 - The global zinc market was in surplus by 223,000 tonnes in the first half of 2011, the latest monthly bulletin from the International Lead and Zinc Study Group (ILZSG) showed. The latest figures show global refined zinc use was 6.228 million tonnes in January-June 2011, compared with 6.081 million a year earlier. World refined zinc output rose to 6.451 million tonnes from 6.266 million over the same period.

Aug 10 - China produced 2,997,000 tonnes of refined zinc in the first seven months of the year, up 6.7 percent from the same period of last year, according to the National Bureau of Statistics. Output of mined zinc rose by 10.7 percent over the same period to reach 2,249,000 tonnes.

PRICES

Zinc prices ended August at $2,292 a tonne, down from $2,490 the previous month.

The market fell sharply in early August as worries intensified over a spreading euro zone debt crisis and slowing economic growth.

By Aug. 8, three-months zinc prices had fallen to $2,034.25, their lowest since November.

Losses were partially recouped, but zinc's generally poor fundamentals tended to weigh on sentiment and prices lost some of that recaptured ground after reaching $2,311 on Aug. 31.

In July, the twice-yearly Reuters base metals price poll put the median average for zinc cash prices at $2,360 a tonne for 2011 and at $2,453 for 2012.

According to the January poll zinc prices were expected to average $2,425 a tonne this year compared with an average of $2,159 last year.

STOCKS

LME zinc stocks ended August at 855,850 tonnes, down from 889,325 tonnes the previous month.

Inventories declined steadily throughout much of August, eroding the sharp increases in early July, which took them to 894,825 tonnes and their highest in over 16 years.

At the end of last month they equated to around 24-1/2 days of demand.

Meanwhile, deliverable Shanghai zinc stocks were 417,784 tonnes at the end of August, up from 400,571 tonnes a month earlier.

Western world commercial stocks of zinc were 1.373 million tonnes or 10.1 weeks of demand at the end of June, up from 1.356 million or 10.5 weeks the previous month and 1.163 million tonnes or 10.0 weeks at the end of 2010.