Commodity Trading In Zinc, Exposure To BRIC Demand
With projected strong world demand for steel, the long term prospects for commodity trading in zinc look very good, as almost half the demand for zinc comes from galvanising steel.
The automotive industry uses this base metal as a corrosion resistance barrier in vehicles, as does the construction and engineering industry for roofing, weather proofing.
Zinc also finds use as an alloy (15%) as well as a major component in brass.
While demand growth may have slowed in the developed economies, the opposite is true for emerging markets, particularly the BRIC, and suppliers have difficulty keeping up with consumption.
Get your FREE INO Trading Alerts when you subscribe to our free Commodity Universe Newsletter here. Just complete the simple form below. It's as easy as 1-2-3!
So if you want to gain exposure to the fortunes of zinc you could set up an online commodity trading account with a brokerage firm and trade zinc futures on the LME. Alternatively, you could track an industrial metals commodity benchmark index using a base metals ETF or one which tracks zinc futures exclusively.
When you are preparing for commodity trading in zinc, you may want to combine a technical analysis using your favoured commodity trading system with fundamental data on zinc production, consumption and stocks.
At this stage the metal is pure enough for applications such as galvanising.
If, however, it is to be accepted for trading on world metal exchanges such as LME, it must be of 99.95% or more purity.
These high grade and special high grade zinc slabs then become the world zinc benchmark for trading.
You should bear in mind that because the zinc production base is relatively widely spread, the industrial metals industry can be slow to react to changing market conditions.
This shows itself by a slower price rise during a recovery compared to other metals because high stocks are still being drawn down.
Conversely, inventories will still be building up due to overproduction, even when the economic cycle is in its downward phase.
Zinc Mine Production
Over the 10 years to 2006 world zinc mining production increased 37% to 10.13 million tonnes (mt), and the contribution of the BRIC economies was 3.84 mt, representing 38% of the total, according to the World Bureau of Metal Statistics (WBMS).
The same four countries together made up only 22% of world mining output in 1997.
Just to emphasize the impact of China on the change in world zinc mining production, in 1997 that country contributed 16% to the total, while by 2006 its contribution had increased to 30% (WBMS).
Apart from China, other significant producers include Peru (1.20 mt; 12%) and Mexico (0.48 mt; 5%), while in Western Europe, Ireland produced 0.435 mt in 2006.
Over the 10 years to 2006 world slab production increased 39% to 10.69 mt, while the BRIC countries posted a very solid 117% increase to 4.03 mt, which represented 38% of 2006 world output. Again it is China which dominates this strong rise in the BRIC contribution, with output in that country increasing by 137% to 3.15 mt by 2006.
Interestingly over this period the USA saw a 32% decline in its zinc slab production, while South Korea and Kazakhstan posted decade rises of 98% and 73% respectively. World Slab Consumption
With commodity markets continuing their bullish mood, the base metals are no exception and world demand for zinc slab has increased by 43% to 10.86 mt over the 10 years to 2006, according to WBMS.
The infrastructure growth seen in the BRIC economies, and particularly China, has been reflected in the surge in zinc demand. These are very positive fundamentals for commodity trading in zinc.
While the BRIC nations saw zinc consumption grow by 198% to 3.95 mt in 2006, China alone witnessed a 291% rise to 3.11 mt. The BRIC represented 36% of world demand in 2006, up from 17% in 1997.
Again we see the major world economies posting a fall in consumption of zinc over the 10 years to 2006, with demand in Japan and USA for the metal falling 19% and 10% respectively.
Meanwhile South Korea advanced 63% over the same period, while interestingly Iranian demand surged by 289%.
It is only possible to make a rough estimate that with continuous economic expansion and urbanisation in the BRIC countries that all the base metals will remain in healthy demand. We can expect zinc will continue to be needed for use in galvanising steel, and with massive expansion in automobile production in BRIC economies, zinc demand should remain robust. A look at world stocks of zinc tells us that supplies will struggle unless demand tails off or extra work is done to open new zinc mines and increase production.
In 1997, zinc stocks at metal exchanges were 495,000 tonnes and this had fallen 82% to 91,000 by 2006. Country stocks over the same period fell from 419,000 tonnes to 403,000 tonnes. Overall world zinc stocks dropped 46% over the decade to 2006.
The world economy seems still to be in a commodities bull market where demand for other base metals, such as aluminium, copper, lead, nickel and tin, remains very robust. With urbanisation and infrastructure development forecast to continue strongly over the coming decade and more in China and other BRIC countries, commodity trading in zinc is likely to be well rewarded going forward.
|
