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Woes of Zinc Could End, Still Caution Required

October 12, 2011 at 21:56 by Vladimir Vyun

The recent plunge of zinc may come to an end on the signs of increasing demand and declining supply.

Zinc was falling in three of the last four years on the London Metal Exchange, showing the worst performance among the six major industrial metals. The slowdown of the global economy contributed to the decline. Another reason for the bad performance was overproduction of the metal.

But market analysts began to view zinc in more favorable light. The rapid economic growth in Asia, particularly China, increase demand for industrial metals. Production of rust-proof steel reached the record high of 31.7 million metric tons in the second quarter of this year, according to estimates of Macquarie Group. About 50 percent of zinc is used to produce the alloy. Morgan Stanley predicted the expected production surplus of 270,000 metric tons in 2011 would fall to 130,000 in 2012. Experts forecast supply to drop as prices fell below production costs of some mines.

There are reasons to be optimistic for zinc, but also there are reasons to be cautious. The world economic recovery is encountering problems and may even falter, at least according to forecasts of most pessimistic economists. Such worries aren’t good for industrial metals. The International Monetary Fund cut its global growth forecasts to 4 percent for 2011 and 2011, compared to the previous estimates of 4.3 percent and 4.5 percent respectively.

Zinc rose today from $94.60 to $95.10 per kilogram on MCX, following the previous advance to the daily high of $96.10.

If you have any questions and comments on the commodities today, use the form below to reply.

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