Zinc or swim when the tide turns

Garimpeiro, Barry Fitzgerald

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The tide may be turning for zinc. Photo: Reuters

There's an oversupply now, but a looming shortage is expected to change the game.

ZINC has long been runt in the litter of base metals, notwithstanding its multitude of uses. But the tide may be turning, with some big-name mine closures in the years ahead getting analysts thinking about the day when the oversupplied market goes into deficit.

Goldman Sachs made the point in a recent research note, which posed the question of whether unloved zinc could be the ''next copper,'' given the prospect of a possible shortage from 2013.

Now if zinc was going to take off like copper has done it would be a cause for some real celebration among the base metals producers. But we are looking at a slow burn when it comes to zinc lighting up. However, the potential for a decent price performance is there all right.

''Since 2007, zinc's cumulative surplus has been in the order of 1.3 million tonnes, and we expect the market to remain oversupplied both this year and next,'' Goldman said.

It then pointed out that a series of large mine closures (including Century in Queensland) on reserve bases being exhausted, a shortage of new projects, and expectations that China's internal mine production is levelling out suggest ''significant annual deficits in the zinc market from 2013''.

Goldman said all that would lead to ''growing pricing tension'' justifying significantly higher prices. ''Building some exposure to zinc over the next 12 months should be rewarding on a two-to-three-year view,'' it said.

Having said that, the broker was not moved enough to upgrade its zinc price forecasts. From the US98¢ a pound average for 2010 and the current $US1.06 a pound, Goldman expects a boring old $US1.03 a pound in 2011, US99¢ a pound in 2012 and $US1.07 a pound in 2013.

Then comes the expectation of some fun, with prices tipped to get to $US1.18 a pound in 2014 and $US1.25 a pound.

Given the delay in zinc prices taking off, investors are probably best advised to match zinc exposure to copper where they can.