ZINC: PAST PRESENT AND FUTURE

OCTOBER 2007
Zinc is a bluish white metal, fourth most common metal in
use, trailing only iron, aluminium, and copper in annual
production. The metal is widely used as a key input in Steel
industrygalvanize steel so as to prevent corrosion.This
process not only increases the life of normal by 500% but it
also brings down the maintenance cost. Approximately 35
kilograms of Zinc is used per tonne of galvanised steel
sheet.Worldwide, Nearly half of the world's annual
consumption of over nine million tonnes is used to protect
about 100 million tonnes of steel. Galvanised steel is used for
applications such as sheet roofing, car bodies and housing
construction frames. The demand for Zinc is therefore highly
responsive to movements in the residential construction and
motor vehicle manufacturing industries. The remaining zinc
consumption is for making paint, chemicals, agricultural
applications, household appliances and fittings, in the
manufacture of electrical components, in the rubber
industry, TV screens, fluorescent lights and for dry cell
batteries. Thus, Zinc finds its uses in several core sectors like
Automobile, Construction, Chemical, Rubber,
Pharmaceutical and Alloy-manufacturing industries.

Following chart illustrates the use of metal across various

industries
ZINC PRODUCTION:
There are zinc mines throughout the world, with the largest
producers being China, Australia and Peru, in that order. In
2005, China produced almost one-fourth of the global zinc
output, reports the British Geological Survey. The largest
producing zinc mine in the world is the Red Dog Mine
located in Northwest Arctic Borough, Alaska and operated
by Teck-Cominco. This massive mine produces over 600,000
metric tons of zinc concentrate per year.
World Zinc production grew by 4% to 10.7 million tonnes in
2006. An additional 640,000 tonnes of Zinc metal is forecast
to be produced in 2007, enabling a 6% rise in total output to
11.3 million tonnes.
The increase in global production will come from a number
of mine expansions and new projects that, in turn, reflect
growing explorations budget in recent years. Global
exploration budget have increased by approximately 150%
since 2002.
Increases to supply are expected to come on line
progressively over the medium term. For example, San
Cristobal in Bolivia (capacity of 167000 tonnes a year) and
Cerro Lindo in Peru (capacity of 110000 tonnes a year) are
both due to be commissioned in the third quarter of 2007.
Herald Resources’ 220 000 tonnes a year Dairi mine in
Indonesia is yet another mammoth project. EuroZinc is also
planning to restart the Aljustrel mine (80 000 tonne capacity)
in Portugal.
Over the medium term, four large confirmed projects in
Canada, Mexico, the Russian federation are projected to add
an extra 700000 tonnes to global capacity. In addition to this,
a number of smaller projects, amounting to at least 400 000
are also expected to be completed. This increase in capacity,
combined with the new projects and expansions in 2007, is
projected to result in world Zinc production reaching 13.9
million tonnes by 2012.
Production in Canada is forecast to increase significantly as a
number of new mines start up, with expected capacity of
approximately 330000 tonnes a year. Three projects are due
to start production in 2007, increasing Canadian output in
short term by around 120000 tonnes. However the largest
project, the Perseverance mine, owned by Xstrata, which is
expected to produce 115000 tonnes Zinc a year, is not
forecast to start up until 2009.
Over the medium to long term, countries in Africa may
emerge as major producers of Zinc. International investment
by Chinese and Australian companies in African continent
has already begun to pay off.

ZINC: MINE PRODUCTION

Thousand tonnes (Zinc content)
Annual Totals Jan-Jun
20032004 2005 2006 20062007
Europe 10131007 1057 1035 511 544
Africa 258 352 414 376 187 201
America 37443568 3524 3449 16841861
Asia 30573507 3832 4220 20722307
Oceania 14471298 1329 1321 669 690
World Total 95209733101551040051245603

GRAPHICAL REPRESENTATION OF
WORLWIDE ZINC MINE PRODUCTION
GEOGRAPHICHAL DISTRIBUTION OF
ZINC MINE PRODUCTION
 ZINC: METAL PRODUCTION
Thousand tonnes
Annual Totals Jan-Jun
2003 2004 2005 2006 2006 2007
Europe 2744 2720 2559 2497 1243 1304
Africa 197 260 274 255 143 141
America 1936 1993 1883 1845 886 933
Asia 4450 4906 5057 5612 2697 3067
Oceania 553 474 457 463 214 244
World Total 9879 10353 10229 10672 5182 5690

GRAPHICAL REPRESENTATION OF
WORLDWIDE ZINC METAL PRODUCTION
GEOGRAPHICAL DISTRIBUTION OF
METAL PRODUCTION OF ZINC

TOP ZINC PRODUCING COUNTRIES*

 *based on 2005 data

DEMAND AND CONSUMPTION OF ZINC :-

ZINC: METAL CONSUMPTION

Thousand tonnes
Annual Totals Jan-Jun
2003 2004 2005 2006 2006 2007
Europe 2780 2837 2686 2759 1354 1467
Africa 173 194 204 199 100 103
America 1958 2126 1904 2036 989 961
Asia 4664 5245 5572 5781 2842 2988
Oceania 267 263 253 273 123 140
World Total 9841 10666 10617 11049 5408 5659
GRAPHICAL REPRESENTATION OF
WORLWIDE ZINC CONSUMPTION
GEOGRAPHICAL DISTRIBUTION OF ZINC
DEMAND

TOP ZINC CONSUMING COUNTRIES

WHAT LIES AHEAD:FUTURE OUTLOOK FOR
ZINC
When it comes to future outlook for Zinc, one needs to take
into account the historical price behaviour, and LME
warehouse stock, as well as demand and supply dynamics
that are going to influence the metal’s price in the future.

LONDON METAL EXCHANGE PRICE GRAPH

FOR ZINC (SPOT PRICES) SEPTEMBER 2003 to
2007
LONDON METAL EXCHANGE WAREHOUSE
HISTORICAL DATA
FIVE YEAR WAREHOUSE STOCKS DATA
ONE YEAR WAREHOUSE STOCK DATA

From 610,000 tonnes in June 2005, inventory position is now

down to 65375 tonnes. Zinc LME stock inventories, except
for a few brief lulls have been depleting on a daily basis over
the last few months. Zinc stocks are forecast to decline by 35
per cent to 1.9 weeks of consumption by the end of 2007 as a
forecast 5 per cent rise in metal output to 11.2 million tonnes
again falls short of consumption.
ZINC SUPPLY DEFICITS*:

Zinc Consumption – Zinc Metal Production = -377,000

tonnes
Zinc Consumption – Zinc Mine Production = -649,000 tonnes
Zinc Metal Production – Zinc Mine Production = -272,000
tonnes (concentrate shortage) * 2006 figures

Global consumption of Zinc grew by 4% to 11 million tonnes

in 2006 and is forecast to grow a further 3% in 2007 to 11.4
million tonnes. Over the medium term, growth in
consumption is projected to average 4% a year, bringing
world consumption of zinc to 13.9 million tonnes by 2012.
The International Lead and Zinc Study Group (ILZSG)
expects global zinc consumption to increase by 3.9% this
year and estimates 2007 demand to rise by another 2.6%.
China is by far the world's largest zinc consumer as it
accounts for 30% of total global consumption, three times
that of the next closest country, the United States. The ILZSG
expects China's zinc demand to increase by 6.9% in 2007.

Zinc prices rose substantially in 2006, reaching a record US

$4619 a tonne in late November. Prices are expected to
remain high in 2007 as global demand, particularly from
Asia continues to expand. With consumption of Zinc
forecast to exceed production for a fourth year in a row,
there is expected to be another drawdown in global Zinc
stocks in 2007. Output from new mines is expected to fill the
gap between the production and consumption by 2008 and
stabilise stocks. Over the medium term, supply growth is
expected to be sufficient to meet increased demand, and
prices in real terms (2007 dollars) are forecast to weaken
around US $ 1670 a tonne. Zinc prices continued to rise in
2006, bolstered by strong demand, supply constraints and
the continued drawdown in stocks. Prices increased 137%
year on year to average US $ 3276 a tonne in 2007 as demand
continues to exceed faster than supply.

Total Zinc stocks held by consumers, producers and in

London Metal Exchange (LME) warehouses fell to 495000
tonnes by the end of 2006, equal to 2.3 weeks of
consumption and the lowest since 1991. Global stocks are
expected to fall further as consumption exceeds supply, but
are projected to increase over the medium term to 2.6 weeks
of consumption by 2012.

In real terms (2007 dollars) prices are expected to fall

towards the end of the outlook period as increased
production provides more than enough supply to meet
growing demand. Increased supply capacity (from projects
such as San Cristobal in Bolivia), expected to begin coming
on line after June 2007, is forecast to facilitate some easing of
prices toward the latter part of the year before further
increases in production contribute to prices easing further in
2008 and 2009.

One uncertainty in the outlook for prices is the potential for

Zinc production to be substantially higher than anticipated.
The majority of Zinc mine production in China is sourced
from relatively small mines, between 10,000 and 20,000
tonne capacity, that take relative short time to start
production. Production from these small mines is highly
responsive to prices, and hence if prices remain high for
longer than, say 2 or 3 years, more and more of these mines
may begin production, resulting in significant additional
supply.

A combination of increased smelter capacity and expanding

mine output may result in much higher Zinc production in
China than current forecast. High treatment charges are
encouraging the expansion and construction of new smelters
close to mines in the west of China. Based on recent
experience, it appears that Chinese smelters with a capacity
of 200000 can be constructed in around 2 years.

The combination of new mines and smelters is expected to

contribute to significant growth in Zinc metal production.
Refined Zinc production in China is expected to rise by 10%
in 2007 and again by same proportion in 2008.

Being the leading producer and consumer of the metal,

China is an important link when it comes to Zinc. In China,
Zinc is primarily used principally in country’s growing Steel
industry for galvanizing and as China’s Steel industry
expands further, its appetite for the metal will continue to
rise. The majority of the increase in demand for galvanized
Steel in China is expected to come from the construction and
manufacturing sectors. Construction growth driven by rural-
urban migration is projected to flow through to growth
across a range of major infrastructure development. Massive
infrastructure development for the upcoming 2008 Olympics
in China is yet another factor which will continue to push up
the demand for Zinc.

Strong growth in industries such as motor vehicle

manufacturing is also increasing the demand for Zinc. As
per capita income rises in China, local demand for cars too is
rising rapidly. China is now the world’s second largest
market, after the United States. Production and sales of cars
grew by 25% and vehicle exports more than doubled in 2006.

India is yet another key region, where growths in

infrastructure development in sectors like Power, Refineries,
Ports, Railways, Roads and Bridges has given a boost to Zinc
demand. The growing demand for motor vehicle in India is
also emerging as an important driver of the demand for
Zinc.

As far as United States is concerned, there is a growing shift

towards the use of galvanized steel in housing construction
from traditional timber frames. However a downturn in
housing sector in US in 2007 is expected to hit Zinc demand.
However, the US housing construction is expected to recover
over the balance of the outlook period and contribute to the
US Zinc consumption.

Over the medium term, the consumption of Zinc in steel and

motor vehicle manufacturing industry in both US and
Europe is projected to remain constant. The combination of
increased competition from China’s steel industry and a
downturn in motor vehicle manufacturing, particularly in
the United States is projected to result in flat or declining
consumption of Zinc in both regions.
PRODUCTION, CONSUMPTION AND
WAREHOUSE STOCK (LME) FORECAST
FOR ZINC

*Source: Abareconomics, Australia

In summary, demand for the metal will remain attractive,

but if this demand is balanced by more and more of
supplies, then in medium term, Zinc prices may fail to take
off. Of particular importance are the new mines projects that
are going to start their production from late 2007-early 2008.
Since most of them are supposed to be high capacity projects
they may go a long way in easing the Zinc demand in
medium to long term. Thus, any developments on supply
front needs to be watched closely.
All this, and many more issues related to Zinc will come up
for discussion at International Zinc Conference going to be
held at Bangkok, Thailand (10th –12th September 2007).

ZINC : COUNTRYWISE PRODUCTION DATA

 e
COUNTRY 1999 2000 2001 2002 2003
r r 3
Algeria 9,808 10,452 10,693 8,576 5,201
Argentina 34,192 34,858 39,703 37,325 37,000
3
Australia 1,163,000 1,420,000 1,519,000 1,154,000 1,480,000
r p
Bolivia 146,316 149,134 141,226 141,558 144,985
e
Bosnia and Herzegovina 300 300 300 300 300
r
Brazil 98,590 100,254 111,432 136,430 200,000
e r r r
Bulgaria 10,200 9,400 12,100 13,000 13,000
re
Burma 279 437 467 350 300
Canada 963,321 1,002,242 1,012,048 894,399 1,000,000
r
Chile 32,263 31,403 32,762 36,161 36,200
China 1,480,000 1,780,000 1,700,000 1,550,000 1,650,000
r
Congo (Kinshasa) -- 215 1,014 1,000 1,000
e
Ecuador 100 100 100 100 100
e 3
Finland 20,000 30,493 36,253 34,100 38,900
e r r r
Georgia 400 200 350 400 400
Greece 19,619 16,900 31,700r 33,000r 20,000
Honduras 31,095 31,226 48,485 46,339 46,500
India e 145,000 144,000 146,000 129,000 r 162,000
e
Iran 80,000 90,000 120,000 120,000 120,000
r
Ireland 226,000 262,877 225,135 252,700 250,000
3
Japan 64,263 63,601 44,519 42,851 44,574
3
Kazakhstan 288,300 325,000 344,300 390,000 395,000
e
Korea, North 100,000 100,000 100,000 100,000 100,000
r
Korea, Republic of 9,832 11,474 5,129 99 --
Macedonia 7,900 r 12,200 r 6,300r 2,100r 2,500
r
Mexico 362,811 392,791 428,828 446,104 460,000
r,e
Morocco 111,703 103,064 89,339 91,000 70,000
4 r r 3
Namibia 35,140 39,126 37,622 42,685 60,500
r
Peru 899,524 910,303 1,056,629 1,221,830 1,250,000
r
Poland 154,800 156,900 152,700 152,200 150,000
r
Romania 26,536 27,455 29,786 25,000 25,000
Russia 132,000 136,000 124,000 e 130,000 125,000
e e
Saudi Arabia 3,161 3,000 3,300 3,000 3,000
Serbia and Montenegroe 1,000 2,500 1,200 1,000r 1,500
r 3
South Africa 69,733 62,703 61,221 64,173 41,239
r
Spain 110,000 201,000 164,900 69,900 70,000
r 3
Sweden 174,400 176,788 156,334 148,600 186,900
r r 3
Thailand 24,000 27,000 15,300 33,600 32,900
e r
Tunisia 49,066 41,247 37,900 35,692 36,000
5 e
Turkey 545 39 37 35 35
United States 852,000 852,000 842,000 780,000 738,0003
e
Vietnam 18,000 16,000 16,000 16,000 16,000
Total 7,960,000r 8,770,000 r 8,910,000r 8,380,000r 9,010,000
 ZINC : WORLD SMELTER COUNTRYWISE PRODUCTION
3 e
Country 2000 2001 2002 2003 2004
Algeria, primary and secondarye 34,000 34,000 261,364 32,200 25,000
Argentina:
r
Primary 36,359 39,727 38,699 36,500 31,500
r
Secondary 2,910 3,180 3,098 2,500 2,500
Total 39,269 42,907 41,797 39,000 r 34,000
Australia:

Primary5 490,000 554,000 567,000 553,000 473,000 4

e 4
Secondary 4,500 4,500 4,500 4,500 4,500
r 4
Total 494,500 558,500 571,500 557,500 477,500
Belgium, primary and secondary 251,700 259,300 260,000 e 244,000 e 263,000
Brazil:
r
Primary 191,777 193,061 249,434 251,000 259,000
e
Secondary 7,000 7,000 7,000 7,000 7,000
r
Total 198,777 200,061 256,434 258,000 266,000
r
Bulgaria, primary and secondary 84,200 88,600 83,000 86,800 87,000
Canada, primary 779,892 661,172 793,475 761,199 r 805,077 4
e r
China, primary and secondary 1,980,000 2,040,000 2,100,000 2,320,000 2,500,000
e r r r r
Czech Republic, secondary 150 250 200 250 250
4
Finland, primary 222,881 247,179 235,300 265,900 235,000
e
France, primary and secondary 3,500,004 347,000 350,000 253,000 260,000
r r
Germany, primary and secondary 4 358,300 378,560 388,112 364,000
India:
e 4
Primary 176,000 207,000 231,400 253,900 238,400
e
Secondary 25,000 25,000 24,000 24,000 24,000
4
Total 201,000 232,000 255,400 277,900 262,400
e r r
Iran 490,004 73,000 82,000 84,000 105,000
e
Italy, primary and secondary 4 177,800 176,000 123,000 130,000
Japan:
4
Primary 541,704 541,277 547,183 532,704 534,830
4
Secondary 157,047 142,777 126,723 153,411 132,417
4
Total 698,751 684,054 673,906 686,115 667,247
Kazakhstan, primary and
r 4
secondary 262,200 277,100 286,300 279,000 316,500
Korea, North, primary and
e r r r r
secondary 60,000 60,000 60,000 60,000 60,000
r
Korea, Republic of, primary 473,897 508,000 600,027 647,500 671,000
Macedonia, primary and
e r r r
secondary 69,800 52,000 56,000 28,000 --
r
Mexico, primary 235,073 303,810 302,122 320,364 320,000
6 4
Namibia -- -- 35 47,436 119,200
7 e
Netherlands, primary 216,800 204,800 203,000 223,000 225,000
Norway, primary 125,800 145,000
r
145,000
r
142,000
r
140,000
r r
Peru, primary 199,813 204,646 172,688 202,076 195,692
Poland, primary and secondary 173,000 e 174,700 158,900 153,300 r 153,000
e
Portugal
r r r r
Primary -- -- -- -- --
Secondary 3,600 3,600 3,600 3,500 1,500
Total 3,600 3,600 3,600 3,500 1,500
r r
Romania, primary and secondary 51,900 47,200 51,600 52,000 50,000
e r
Russia, primary and secondary 230,000 237,000 244,000 253,000 240,000
Serbia and Montenegro, primary
r
and secondary 8,291 13,467 1,478 62 100
e
Slovakia, secondary 1,000 1,000 1,000 1,000 1,000
South Africa, primary 103,000 109,000 105,000 e 115,000 104,000
Spain, primary and secondary 386,300 488,000 519,000 525,000
r r
Thailand, primary 77,525 74,129 105,000 107,000 103,000
United Kingdom, primary and
secondary e 760,004 90,000 98,000 14 --

SOURCES:
1. ILZSG.COM (INTERNATIONAL LEAD AND ZINC STUDY GROUP)
2. WIKIPEDIA.COM
3. BLOOMBERG.COM
4. REUTERS.COM
5. MARKETWATCH.COM
6. DOLLARDAZE.COM
7. ABARECONOMICS.COM
8. KITCOMETALS.COM
9. BROOKHUNT.COM
10. REUTERS DATABASE
11. BRITISH GEOLOGICAL SURVEY

Disclaimer: This research report is NOT in the nature of recommendations to buy/sell securities
or commodities by the Mansukh Research Team. Following these recommendations is solely the
responsibility of the trader. Mansukh Commodity Futures Pvt Ltd. is neither responsible nor
liable towards the outcome of these recommendations.
For any query, suggestion and feedback write to:
Sayeed Bin Masood (sayeed@moneysukh.com)
Salman Khan (salmankhan@moneysukh.com)
09971978458,011-32502192