By Leia Michele Toovey- Exclusive to Zinc Investing News

Shanghai base metals fell by their daily limits on Friday, chasing steep falls on the London Metal Exchange (LME).

The Exchange said it would make an announcement about which contracts would be suspended after the market closed.  So far this year, the zinc price is down 52 per cent, and lead has retreated to its lowest price point since June 2006.

A build-up of large inventories of unsold zinc metal has prompted many to predict further price declines. Production cutbacks have yet to hit prices as it can take up to four months for ore pulled out of a mine to end up as shipped metal. This means mines closed in October may not affect end-users until February.

Lead prices on the LME are poised to fall further after dropping sharply in the previous session.  Analysts are now forecasting that the metal’s demand base could weaken further as growth in China continues to shrink and car sales keep falling.  Lead for delivery in three months fell $114 or 11 per cent to $975 a tonne. Lead inventories in warehouses monitored by the London bourse increased 1,125 tonnes or 2.7 per cent to 42,975 tonnes; the biggest jump since June 17.

Octagon Research, however, is more optimistic. They believe forecasters are overestimating the global supply of lead and zinc, suggesting that hard-hit metal prices may rebound sooner than expected. With a market focused almost only on concerns about falling demand, a leaner supply caused by lower prices and complicated by tight credit markets gives the metals sling shot potential. In the past, miners would stockpile metal and keep a mine running during a low-price environment until prices rebounded. But the freeze of credit markets has made this impossible, forcing mines to instead suspend operations. Once demand increases, it will take some time for the supply to rebound.  In the lag time for new supply to be available a rapid price ascent is likely.

Company news

Hindustan Zinc announced on Wednesday that it had reduced the prices of zinc alloys by Rs 3,200 to Rs 68,200 a tonne.  However, the company kept the prices of lead at previous week’s level of Rs 73,500 per tonne.

Xstrata will scale back zinc and lead output at its Macarthur River Zinc mine in the Northern Territory because of poor demand. Macarthur will cut output of its bulk zinc and lead concentrate to 2 million tonnes from 2.5 million tonnes, an Xstrata spokeswoman said.  “The reduction is due to short-term weak demand from Imperial Smelting Furnace smelters for the bulk product. The reduced mining rate represents a 68,400-tonne cut in dry concentrate, equivalent to 31,700 tonnes of contained zinc and 7,200 tonnes of contained lead.  Xstrata expanded the mine from just under 2 million tonnes last year, and according to company data, it produced 137,737 tonnes of zinc in concentrate in 2007, as well as 33,040 tonns of lead. In July, Xstrata and Canadian miner Teck Cominco announced the closure of the Lennard Shelf zinc mine ahead of schedule, also in response to low zinc prices as well as a high Australian dollar.

A labour dispute at Shenzhen Zhongjin Lingnan Nonfemet Company, China’s third-largest zinc producer, has been resolved and has not affected output, company officials said on Tuesday. The dispute broke out on Monday, as some contractors protested against changes in the renewal process for their employment contracts. The changes were subsequently dropped. About 400 workers gathered near the plant on Monday to protest, blocking traffic for nearly two hours.

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