Markets | Zinc

Demand for global refined zinc rose by 4% during 2007 to 11.6 million tonnes. Strong growth in many of the developing world economies, particularly China and India, helped to offset slower consumption in North America and Europe. In China, galvanising requirements continued to grow rapidly, mainly driven by the strong construction sector, but also influenced by booming vehicle production, consumer goods and urban construction. Strong zinc demand also came from Brazil and Russia, where the construction sector is starting to benefit from higher government spending on infrastructure.

In 2007, global zinc mine production increased by 6% to 11.3 million tonnes, due to new mines starting in Bolivia, Peru and Portugal and increased production in China, Kazakhstan and Australia. The market for concentrates eased somewhat from the very tight levels seen in the past three years resulting in negotiated treatment charges for 2007 increasing to $300 per tonne basis $3,500 zinc, compared to $128 per tonne basis $1,400 zinc negotiated in 2006.

Global refined zinc production increased in 2007 by 7% to 11.3 million tonnes in response to increased demand, continued high prices and improved concentrate availability. The largest increase in zinc metal output came from China, where refined zinc production grew by 17% to 3.7 million tonnes representing one third of world production. The higher availability of concentrates enabled China to double zinc concentrates imports to over 600,000 tonnes of contained zinc, resulting in a significant increase in metal output. Other increases in metal output were seen in Russia, Mexico, Brazil and India, where a new smelter was commissioned.

LME stocks increased during the first quarter due to higher Chinese exports, but decreased in the following two quarters as China again became a net importer of refined zinc to end the year at similar levels to the start of the year.

The LME cash zinc price remained above $3,000 per tonne during the first eight months of the year but weakened in the last quarter of the year to end the year at $2,290 per tonne, responding to an expected increase in mine and metal output during 2008. The average LME cash price for zinc was similar to the previous year at $3,257 per tonne in 2007 compared to $3,264 per tonne in 2006.

Outlook

Although zinc mine and metal output is expected to rise in 2008 in response to the ongoing high price environment, strong growth in zinc demand is also expected, particularly in developing world economies. LME zinc stocks of less than three days of global consumption remain at historically low levels and, while a moderate supply surplus is expected in 2008, the potential for further supply disruptions provides additional support for prices above long-term averages. Treatment charges are expected to continue to increase in 2008, in line with greater availability of concentrates.

Lead

Global lead consumption is estimated to have increased in 2007 by approximately 4% compared to the previous year. China continues to be the driving force behind global growth with consumption increasing by 16%, an additional 350,000 metric tonnes year-on-year driven primarily by demand from the automobile and electric-powered bicycle sectors. Demand in Western Europe decreased by 2% and demand from North America remained flat year-on-year.

In 2007, global refined production increased by less than 2%, with Chinese production curtailed by export tax increases. The largest increases in refined production came from Russia and Eastern Europe, which together accounted for an aggregate increase of approximately 75,000 metric tonnes. The global supply balance for lead is expected to show a greater than expected deficit of up to 200,000 metric tonnes for the year.

LME stocks fluctuated during the year between a low of 22,000 metric tonnes and a high of some 48,000 metric tonnes, ending 2007 at 45,475 metric tonnes, 4,500 tonnes or 10% higher than at the start of the year.

The average LME monthly cash price for lead rose from $1,666 per tonne in January, increasing each month to reach a peak of $3,980 per tonne in mid October, after which prices eased. At the year end, the LME cash closing price was $2,546 per tonne.

Outlook

In 2008 the lead market is expected to be fairly balanced, with rising global demand driven mainly by China matched by increased production of refined lead. Lead stocks are therefore expected to remain low, contributing to a tight market during 2008 and supporting lead prices at historically elevated levels.