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MS I wouldn’t say I am completely bullish on the metal just yet. But with the price hovering where it is, and if it continues to decline or stay at these lower levels than I can see a fair bit of supply destruction occurring. What has made this situation even worse is that some projects that would be feasible in normal market conditions are struggling to get finance due to depressed debt and equity markets.

For starters some large zinc mines have already been shutdown or put on care and maintenance, and even if the zinc price did shoot up all of a sudden, it would still take considerable lead time for them to reopen. Many other higher cost zinc miners are struggling to turn a buck also in the present environment and I suppose will be trying to hang in there as long as possible in hope they can cut costs or the zinc price will rise. But the longer that these prices stay around for and if they fall even lower then I would only assume that more miners will close down there operations.

In some ways I’d be very happy to see the zinc price fall further or stay at or around its current price for an extended period of time say 12 to 18 months or even slightly longer to force some of these high cost producers to close their operations and to deter new mine development coming into production. Why? Because this could potentially create a chance for a strong upwards movement in the zinc price which in turn would benefit existing low cost producers that can weather the storm.  If this then did occur there would still be a lengthy period of time before supply caught back up to demand once again. So I see this doom and gloom scenario in zinc at the moment as potentially a good opportunity going forward.

In terms of potential zinc plays, Id still try and stay with companies that are low cost producers of the metal and can maintain good margins and profitability regardless of whether zinc prices fall another 15-20%, of course not saying they will but better to be safe than sorry. Also may be a bit better to stay with companies that have some additional exposure to copper, gold &/or nickel but still have good leverage to zinc. I like Oz minerals & Kagara probably look the best, but JML and TZN are also expected to be low cost producers of zinc as respective production reaches full capacity. Companies with considerable by products such as copper and/or gold are also going to fair much better.  All the companies mentioned above fit this category, but is always good to keep in mind if you come across other zinc producers that you fancy.

But I don’t think there is too much rush to jump in just yet, considering this market (ASX and zinc) probably has further to fall and this is a more long term trend I’m focussing on. But as with any long term prediction, it is still extremely difficult to predict with great accuracy. I am just trying to supply the facts and hope people will join in an attempt to put together a better fundamental picture of the metal going forward. If I continue to see mine closures and project delays occurring this will re-affirm my initial position of strong outlook for the metal going into 2010.  But then again there is also a risk that the demand side of things won’t hold up either. So it depends also what your views are on demand for resources long term.