ZINC-Major market developments in November

LONDON Dec 22 (Reuters) - Zinc was one of the few industrial metals to end November in the plus column and while the demand outlook is not too bright, the recent supply response suggests the downside for prices is limited.

High cost producers in China in particular have started to feel the pinch.

"We are beginning to see something of a supply response, more in the way of producers holding back from selling concentrates and metal, so the downside does look relatively limited," said Barclays Capital metals analyst Gayle Berry.

Barclays expected zinc prices to trade in a $2,000 to $2,500 a tonne range next year.

The London Metal Exchange (LME) three-months zinc price was last indicated at $1,862 a tonne.

Graham Deller of industry consultants CRU Group expected prices to regain the $2,000 level in early 2012.

While demand had weakened, so too had supply so the net result was that the global market was still looking at a surplus of around 200,000-300,000 tonnes, no worse than expectations six months ago, he said.

But Fastmarkets analyst Will Adams still thought prices had further to fall, with $1,800 a trigger level for more output cuts, particularly in top producer China.

Below are some of the more significant recent developments in production, stocks and prices that may continue to influence the direction of the market in the remainder of 2011 and into next year.

PRODUCTION

Nov 28 - Glencore was in "advanced talks" to take a majority stake in the Rosh Pinah lead-zinc mine in Namibia, a source close to the situation said. The sale to Glencore of the 50.04 percent stake held by Exxaro Resources and a further 30 percent held by Namibian empowerment groups was confirmed on Dec. 15. The deal is subject to regulatory approvals from Namibia and South Africa.

Nov 16 - The global zinc market was in surplus by 275,000 tonnes in the first nine months of the year, according to the International Lead and Zinc Study Group (ILZSG). The figures showed global refined zinc use was 9.445 million tonnes in January to September, up from 9.332 million in the same period last year. World refined zinc output was 9.720 million tonnes, compared with 9.467 million a year earlier.

Nov 2 - Bolivia awarded a Chinese consortium called Henan Yuguang International Economic & Technical Cooperation a contract to build two zinc smelters at a cost of roughly $500 million, the Bolivian government said. The state-owned Chinese group will provide financing for the project and the smelters are seen coming on line in 2015, according to the head of Bolivian state mining firm Comibol.

PRICES

Zinc prices made some headway in November, ending the month at $2,071 a tonne, up from $2,000 at the end of October.

While sentiment for the most part remained gloomy, zinc avoided a re-test of the previous month's lows just above $1,700.

Most of the market's gains, however, were made on the last day of the month following news of a coordinated move by major central banks to provide liquidity to the financial system.

But concerns for global economic prospects and a potential negative impact on demand took its toll on prices again in December.

STOCKS

LME zinc stocks continued the downtrend in place since early August and finished the month at 741,350 tonnes, down from 777,275 tonnes the previous month.

Declines continued into early December when inventories reached their lowest since April. But deliveries into warehouses in New Orleans later saw the overall LME total jump back up to just below 760,000 tonnes.

Further big increases have since pushed them back above 800,000 tonnes for the first time since early October. But they are still well below levels of almost 900,000 tonnes reached in July, when they were at their highest in more than 16 years.

At the end of November LME stocks equated to around 21-1/2 days of demand.

Deliverable Shanghai warehouse stocks stood at 368,939 tonnes at the end of November, down from 375,288 tonnes in October.

Global commercial stocks of zinc at the end of September were 1,853,400 tonnes or 5.2 weeks of demand, up from 1,900,800 tonnes or 5.7 weeks the previous month and from 1,562,000 tonnes or 5.0 weeks at the end of last year, according to the ILZSG. (3000 Xtra users can access Reuters Metal Production Database (MPD) by clicking on: here) (Compiled by Karen Norton; editing by James Jukwey)