Zinc Resumes Weekly Slide on Concerns Supply May Outpace Demand

By Glenys Sim

June 27 (Bloomberg) -- Zinc headed for the fifth weekly decline in six weeks on concerns that supply may outpace demand as production increases amid high global inventories.

The International Lead and Zinc Study Group forecasts the metal used to galvanize steel will have a surplus of 215,000 metric tons this year as global output expands.

``Yesterday's short-covering rally wasn't sustainable as fundamentally zinc isn't looking too good, especially longer term because expectations are for China's output to increase much more,'' Li Rong, chief analyst at Great Wall Futures Co. in Shanghai, said today.

Zinc for delivery in three months on the London Metal Exchange fell as much as $47, or 2.4 percent, to $1,943 a metric ton, and traded at $1,950 at 10:10 a.m. Singapore time. Zinc has fallen 18 percent this year as global stockpiles rose.

Zinc inventories tracked by the London Metal Exchange stood at 149,700 tons yesterday. Stockpiles have more than doubled in the past year.

Zinc for delivery in September, the most-active contract, added 2.3 percent to 16,115 yuan ($2,348) a ton on the Shanghai Futures Exchange, at 10:15 a.m. local time.

China's switch from being a net exporter of zinc last year to a net importer this year ``has not prevented a large rise in London Metal Exchange inventories, in part because demand in ex- China has been relatively subdued'', Lehman Brothers Holdings Ltd. analyst Michael Widmer wrote in a report e-mailed June 24.

China Earthquake

``Zinc production was not significantly affected by the earthquake in Sichuan province,'' Widmer said. ``The zinc market has, in our view, the weakest fundamentals of all the base metals.''

Zinc output in China was 339,000 metric tons in May, up 4.2 percent from a year earlier, according to data issued by the country's statistics bureau. Output in the first five months of this year rose 4.1 percent to 1.55 million tons.

Among other LME-traded metals, copper fell 0.1 percent to $8,440 a ton, aluminum was little changed at $3,104, and lead rose 0.6 percent to $1,820. Nickel and tin had not traded as of 10:27 a.m. in Singapore.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net