Market Briefing - September 4, 2009

The monthly average for August increased 15.4% month-on-month, to $1,822/tonne, to record its highest level since July of last year. After picking up in late July, prices have remained consistently strong, even threatening to break through the $1,900/tonne barrier in mid August. This trend has continued in early September, with prices currently still above $1,800/tonne.

Investor interest remains the key driver in our view, as the strength in prices at odds with the fundamentals and stock movements on the LME. LME inventories have continued their climb, and are currently recorded at close to 440,000 tonnes. This is up 25% on the start of July, and up over 70% on levels seen at the start of the year. Although the pace of stock accumulation slowed to 26,700 tonnes in August, from a 54,575 tonne rise in July, the fact that they are still rising is concerning for the market. The latest ILZSG data highlights the weak fundamentals over the first half, when the zinc market was in a surplus position of 273,000 tonnes.

Refined production suffers from mass cutbacks over first half…
Preliminary data from the International Lead and Zinc Study Group (ILZSG) shows refined production down 8.6% over the first half of the year to 5.352 million tonnes. With the exception of China, there was little sign of recovery in production at the end of the first half. In a measure of the responsiveness of production to the changing conditions, Chinese production has increased over 35% from February (when the global total was at its lowest) to June whereas production in the rest of the world (excluding China) has increased by just 5%.

Over the first seven months Europe saw a significant 25% fall in output due to a number of production cutbacks from the region’s major producing countries. Considerable declines took place in Belgium (-100%), Germany (-54%), the Netherlands (-28.2%), Romania (-86.7%) and Russia (-23.5%). The Americas also saw notable declines as its total production was down 16.2%. Brazil (-22.3%), Canada (-15.6%), Peru (-16.8%) and the United States (-31.7%) all struggled.

> This article gives the introduction to our latest detailed analysis on the market. To access a full version of a recent detailed monthly report on the base metals markets plus a recent briefing update, click on the links below.

> Base Metals Market Briefing - December 9, 2008.

> Base Metals Market Briefing Update - December 16, 2008.

Disclaimer: Whilst every effort has been made to ensure the accuracy of the information used in this document, GFMS Metals Consulting cannot guarantee such accuracy and GFMS Metals Consulting does not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this information.