China's Strong Copper and Zinc Markets Good News for Teck Cominco

The latest zinc trade data out of China came as a huge positive surprise to the market and should bode well for a balanced zinc market this year and next, according to Desjardins analyst John Hughes.

On Thursday, the Chinese government said that the country imported net refined zinc of 4,672 tonnes in April compared to net exports of 119,218 tonnes in the same period in 2007. Net imports from January to April now stand at 4,334 tonnes versus net exports of 119,218 tonnes during the first four months of 2007.

In a note to clients Mr. Hughes said:

We view this as very positive – recall that the market was expecting China to be a net exporter of zinc metal at an average monthly rate of 12,000 to 17,000 tonnes at the beginning of the year.

Going forward, the analyst said the country will record net imports of around 5,000 tonnes in May 2008 and be a net exporter by 50,000 tonnes in 2008. In 2007, China exported net 126,159 tonnes of zinc.

Mr. Hughes told clients the data supports his forecast of a balanced zinc market in 2008 and 2009, and based on the expectation for inventory levels to remain at current lows, he estimates average zinc prices of $1.25 per pound in 2008 and $1.50 per pound in 2009.

The Desjardins analyst also foresees a balanced world copper market in 2008 and 2009 after China also reported strong data for refined copper, with net imports at 109 kilometric tonnes during the month. For the year so far, net imports equal 486 KMT for a annualized rate of 1,467 KMT versus Mr. Hughes' estimate of 1,200 KMT.

Mr. Hughes' said China's strong demand for both copper and zinc markets is good news for Teck Cominco Ltd. (TCK) and reiterated his "buy" rating and C$59.60 price target on the stock.

He wrote:

We note that copper and zinc sales constituted 29% and 40% of Teck's consolidated revenues in 2007, and we expect the company to benefit from strong metal prices in 2008.

Comments

[activetrader:]

Been looking for some further good news on TCK. It seems the insatiable apetitite for all things metal in China will not only support the expanding Austrailian mining market, but the Canadian and internationally diversified miners as well. Could $59.60 a share as suggested here be conservative? Post earthquake mining there will no doubt have it's effect but now they will likely need even more foreign resources to aid not only expansion but rebuilding as well.

2008 May 25 03:49 PM