Last Updated : 05 March 2009 at 23:30 IST
Zinc & Nickel stocks pile up at LME inventories
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Zinc stocks at the London Metal Exchange have consistently risen through the month of January about 35 percent to end at 345,275 tonnes on the last trading day of the month. LME inventories of nickel grew by 5,262 tonnes during January, to reach 84,078 tonnes by end-month.
Last month Zinc producers have been on a rapid production cutting spree but the question is, is it enough to prevent further price falls and a growing surplus? The world production of Zinc was about 8.5 million tonnes in 2008 and all this cutting and trimming has cut about 2.58 million tonnes.
Despite lower input costs about 25 percent of zinc production is loss making. This only means that for every decrease in the zinc price more production comes under the hammer. This would be terrible in the medium run as over time the concentrate surplus will be potentially wiped out and a shortage of the metal might arise.
On the long run, this could very well happen because the monster mines of today are fast reaching their end of operational lives and there isn’t much to replace them.
Zinc’s future in the short term appears to be dim as the key end use markets, such as the construction and automobile sectors, appear to be still deteriorating and macroeconomic conditions suggest this situation is going to stay for long. But, if Zinc supply remains consistent and if there are further production cuts then these could eat into the concentrate surplus developed in 2008 at least by 50 percent for 2009.
Zinc stocks at the London Metal Exchange have consistently risen through the month of January about 35 percent to end at 345,275 tonnes on the last trading day of the month.
This could be taken as a good sign because the rise in zinc stocks seems to have slowed down when compared to the rise of 76 percent in the month of December. Pick up in supply has also been relatively faster but the demand conditions still dominate the price movements of Zinc.
Although nickel prices over the course of January did not return to the lows seen in December, they kept to relatively low levels throughout. With the exception of the first few trading days of the year, when a rebalancing of the Dow Jones AIG commodity index fuelled nickel purchases in related investment baskets, pushing the LME spot to levels unseen since early October last year, nickel prices kept below $12,000/tonne, notably lower than the $21,029/tonne average price last year.
What seems to be the problem with Nickel is weakness in demand which has dominated the market trend, primarily fueled by ailing stainless steel production. In tune with the other base metals, production cutbacks have continued to emerge but failed to counteract losses in demand. The market has as a result remained in surplus. LME inventories grew by 5,262 tonnes during January, to reach 84,078 tonnes by end-month.
An important production cut took place when on January 21st 2009; BHP Billiton announced it was suspending operations at its Ravensthorpe nickel mine in Western Australia. Till this time, the company had registered reducing output, and falling prices of the metal have now made the relatively high-cost operation unprofitable.
The mine was riddled with several problems, resulting in its only coming on stream in the last quarter of 2007, nine months
behind schedule. Nickel production at the company’s other Western Australian mine, Mount Keith, was also reported to be reduced.
Courtesy: Knowledge Management Department of NCDEX Limited
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