Zinc Market Outlook – First Quarter 2010
Global zinc demand remains weak, supported almost solely by increased Chinese off take, in part due to restocking. As China’s restocking process comes to an end, an increase in demand outside China will be required to prevent renewed weakness in global demand. RBC CM expects inventories to remain above critical levels throughout the forecast period. RBC CM estimated surplus in 2009 suggests inventories ended the year at 10.6 weeks of consumption, in line with the change in reported inventories. The recent rally has pushed the zinc price above the bottom of its historical range in real terms compared to inventories as weeks of consumption. With inventories high and rising, and with low capacity utilization rates, the fundamentals do not justify the price move. Investment funds flows have emerged as a key driver of prices over the past six months, and while it is impossible to know how long this will last, when the fundamentals finally reassert themselves, the historic inventory price relationship points to downside risk for zinc prices. RBC CM forecasts an average price of
.80/lb in 2010,
.80/lb in 2011,
.85/lb in 2012 and
.95/lb in 2013. The long-term price forecast is
.90/lb in 2009 US$.