Reuters reported that improving steel consumption will buoy zinc over coming months but the chances are high for a dip later in 2010 as producers prematurely restart idled capacity.
Investors are starting to see the first signs of life in a steel industry that has languished since 2008 because the world economic downturn devastated the auto and construction sectors. But a global rise in auto sales is supporting the demand outlook for steel and its galvanizer, zinc.
Mr David Wilson an analyst at Societe Generale said that "We're seeing a big pick up in steel production globally which has got to be very positive for zinc consumption. The auto sector globally is picking up strongly."
Autos data in January was impressive, with China's passenger car sales jumping 115.5% on the year and Indian monthly car sales hitting a record high US car sales are also improving.
Short term government-backed car scrappage schemes worldwide aimed at boosting flagging economies have helped auto sales to swell, but analysts see real demand improving as well as world economies emerge further from recession.
Zinc prices neared USD 2,200 per tonne on February 26th 2010. Prices have shed some 15% so far in 2010 on concerns about Chinese monetary tightening, while worries about debt laden Greece have spurred the dollar and made metals costlier for non-US buyers. But China's demand remains strong, as hefty infrastructure spending forges on in the world's top base metals consumer.
Analysts recently polled by Reuters see 2010 prices averaging a bit higher, around USD 2,300. Zinc hit USD 2,736 in early January, its peak so far this year and its highest since March 2008, while its low so far in 2010 was USD 1,935 on February 5th 2010. In November 2006, prices hit a record high of USD 4,580 tonne.