Zinc Rallies for Fourth Day in Asia After China Cuts Production

By Glenys Sim

July 14 (Bloomberg) -- Zinc advanced for a fourth day in Asia, extending the 15 percent gain made in the past three days, after some Chinese zinc producers agreed Saturday to cut output.

Zinc and lead smelters in China, the world's largest producer of the metals, agreed to cut output by 10 percent from July to September to reduce costs and ease a power shortage, the Shanghai Nonferrous Metals Trade Association said in a statement.

``The problem zinc faces is oversupply, and this is what will keep the rally in check,'' said Li Zhicheng, an analyst at Zhujiang Futures Co. in Guangzhou. ``It's not just ample supply of the metal itself. In China, the concentrates market is also well supplied at the moment.''

Zinc for delivery in three months on the London Metal Exchange gained as much as 4.7 percent to $2,120 a metric ton, and traded at $2,080 at 1:23 p.m. Singapore time. The contract has declined 12 percent since the beginning of the year.

Zinc for delivery in September, the most-active contract, rose as much as 345 yuan, or 2.2 percent, to 16,150 yuan ($2,364) a ton on the Shanghai Futures Exchange, and stood at 16,120 yuan at the 11:30 a.m. local time break. The contract has gained 5.5 percent in the past two days.

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

Lower Forecasts

Macquarie Bank Ltd. and UBS AG lowered their zinc price forecasts this year, citing weak demand and adequate supply.

Zinc will average 95.3 cents a pound ($2,100 a metric ton) this year, down 11 percent from a previous forecast of 107.6 cents, Macquarie said today. Zinc will average 97 cents a pound this year, UBS said July 11. Its previous forecast was $1.15.

``We continue to see 2008 and 2009 as a challenging time for zinc producers, with rapid growth in global zinc mine production and slow growth in demand, leaving both the concentrates and the metal markets in surplus,'' Macquarie analysts led by Jim Lennon said in a report today.

Prices of zinc have also fallen as stockpiles more than doubled in the past year. Inventories tracked by the London Metal Exchange stood at 151,000 tons July 11, up from 69,825 tons a year ago.

Among other LME-traded metals, copper gained 0.7 percent to $8,325 a ton, aluminum added 0.5 percent to $3,333, lead was up 3.8 percent at $2,040.25, and nickel was 1.4 percent higher at $21,900 a ton. Tin had not traded as of 1:20 a.m. in Singapore.

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