ZINC-Major market developments in January

LONDON, Feb 9 - Global zinc prices may pick up near term after the recent sell-off, but they will head lower still in the second half of the year as stocks continue to build, some analysts say.

"Short term I see more people getting sucked into buying over-priced metal, but there will be a pause in the growth cycle, the second half will be a lot less strong than a year ago," said Graham Deller of industry consultants CRU Group.

"Zinc prices will be on quite a firm downward track in the second half," he said.

Deller predicted prices would fall to $1,500 a tonne by the end of the year and he did not expect them to bottom out until around the end of the first quarter or early second quarter next year.

At 1400 GMT the London Metal Exchange three-months zinc price <MZN3> was indicated at $2,052/62 a tonne.

"Stocks are rising and even though the rate of increase has slowed, it's hard to escape the conclusion that zinc is heading for a big surplus this year," said independent consultant Angus MacMillan.

CRU's Deller said the surplus could be as high as 1.5 million tonnes if the worst case scenario played out.

Neil Buxton, managing director of GFMS Consulting, said the short-term focus was on still weak demand from zinc's main end-uses and rising Chinese mine production.

He predicted a neutral to bearish outlook for prices, but said the picture might change in 2011 and 2012 due to the upcoming closure of a major mine and a lack of mine development, which would crimp mine supplies.

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 2010.

PRODUCTION:

Jan 28 - Production from Australia's Century zinc mine will rise about 38 percent this year, after technical problems cut output in 2009. Zinc in concentrate production will rise to 500,000-510,000 tonnes in 2010 after a 79-day production halt lowered output to 360,569 tonnes in 2009, MMG, the Australian unit of China's Minmetals, Century's owners, said. [ID:nSGE60R001] The company ceased concentrate production on Jan. 28 due to a tropical storm bearing down on the region. Mining operations were continuing, it said. [ID:nSYU009311] On Jan. 3 the company said zinc concentrate production had resumed at the mine. [ID:nSGE61206K]

Jan 25 - Belgium's Nyrstar <NYR.BR>, the world's biggest producer of refined zinc, has agreed to buy 1.25 million tonnes of zinc in concentrate from Finland's Talvivaara <TALV.L> to increase its self-sufficiency in raw material. Nyrstar said it had agreed to buy the 65 percent grade concentrate for $335 million. The first delivery is expected in February, ramping up to 90,000 tonnes a year from 2012 and with supplies to run over the next 10 to 15 years. [ID:nLDE60O05W]

Jan 21 - China produced 4,416,100 tonnes of refined zinc in 2009, up 11.6 percent from 2008, according to the National Bureau of Statistics. Output of mined zinc rose by 1.0 percent over the same period to reach 3,192,200 tonnes. [ID:nAPI000632]

Jan 20 - The global zinc market was in surplus by 424,000 tonnes in the first 11 months of 2009, the International Lead and Zinc Study Group's monthly bulletin showed. Global refined zinc use was 9.834 million tonnes in the January to November period, down from 10.585 million tonnes a year earlier. World refined zinc output was 10.258 million tonnes, down from 10.698 million in the same period last year. [ID:nLDE60J18D]

Jan 15 - Eritrea's fledgling mining sector is unlikely to be affected by U.N. sanctions on the Red Sea state, the general manager of Bisha mine, run by Canada's Nevsun Resources <NSU.TO>, said. He said there had been no slowdown in the project since the announcement. Bisha is Eritrea's most advanced mining project. Its 27 million tonnes of ore are believed to contain 1 million ounces of gold, 700-800 million pounds of copper and 1 billion pounds of zinc. Production is expected by the end of the year. [ID:nLDE60E0QQ]

Jan 15 - Teck Resources <TCKb.TO> said a group of native and environmental organisations in Alaska has appealed the state's certification of a water permit needed for a planned expansion of the Red Dog lead-zinc mine. Teck said there is only one other permit outstanding for Aqqaluk, and said development of the deposit could be delayed by any hiccups in the permitting process. Red Dog's main reserves are expected to be depleted in 2011, at which point Aqqaluk should already be up and running. [ID:nN15228005]

Jan 12 - Peru's government asked Doe Run Peru to restart operations at its polymetallic smelter, shut since June because of financial and environmental troubles, and said further delays would complicate talks with its workers. Doe Run Peru, a unit of U.S.-based Renco Group, said the previous week that work at its La Oroya smelter would likely not resume in January, as the company had predicted at the end of last year. [ID:nN06148640] Doe Run, which has struggled to reach an agreement with its suppliers and potential creditors, has delayed the restart several times. [ID:nN12204846]

Jan 6 - Bulgaria's largest zinc and lead smelter, KCM, will boost output of both metals this year betting on better market conditions, the company said. In 2010 KCM plans to raise production to its 2008 pre-crisis volumes to 72,000 tonnes of zinc and 65,000 tonnes of lead. [ID:nLDE60507T]

Jan 5 - Antamina, a leading copper-zinc mine in Peru, said shareholders have formally approved its $1.2 billion expansion. Antamina -- a joint venture between BHP Billiton Ltd <BHP.AX> <BLT.L>, Xstrata <XTA.L>, Teck Cominco Ltd and Mitsubishi Corp <8058.T> -- said the expansion would lift the volume of ore moving through its mills by 38 percent. Construction is expected to start in the first half of 2010 and be operational in the second part of 2011. It is expected to extend the life of the mine to at least 2029. [ID:nN0547032]

PRICES

Zinc prices ended January sharply lower at $2,130 a tonne from $2,575 the previous month.

Three-months prices actually rose to $2,736 on Jan. 7, their highest since March 2008, on worries about supplies from top producer China.

However, that soon gave way to concerns about Chinese demand unnerved in particular by the speed and extent of that nation's moves to rein in excessive credit growth this year.

The downtrend has continued into early February and by Feb. 5 three months zinc had fallen to $1,935, its lowest since October.

In January, the twice-yearly Reuters base metals price poll [MET/POLL] put the median average for the LME cash zinc price <MZN0> at $2,293 a tonne in 2010.

STOCKS

LME zinc stocks ended January higher at 497,125 tonnes from 489,125 tonnes a month earlier. The pace of increase was considerably slower than in December though and inventories dipped slightly around mid-January before picking up again.

That trend has since continued and on Feb. 5 stocks exceeded the half a million tonnes mark. LME stocks are around their highest since October 2005 and at the end of January equated to more than 15-1/2 days of demand.

Zinc stocks in Shanghai warehouses also increased to 222,660 tonnes from 171,900 tonnes a month earlier.

Western world commercial stocks totalled 908,800 tonnes or 8.0 weeks of demand at the end of last November, up from 880,700 tonnes or 7.9 weeks the previous month and 764,000 tonnes or 6.0 weeks at the end of last year.

For a graphic on LME zinc stocks and three months prices click on:

http://graphics.thomsonreuters.com/0210/LME_ZNC0210.gif

(3000 Xtra users can access Reuters Metal Production Database by clicking on http://mpd.session.rservices.com. MPD details historical and predicted output and capacity for bauxite, copper, lead, zinc and gold mines, alumina refineries, aluminium, copper, lead and nickel smelters and copper, zinc, lead and nickel refineries between 1997 and 2013.)