ZINC: PAST PRESENT AND FUTURE

Zinc is a bluish white metal, fourth most common metal in use, trailing only iron, aluminium, and copper in annual production. The metal is widely used as a key input in Steel industrygalvanize steel so as to prevent corrosion.This process not only increases the life of normal by 500% but it also brings down the maintenance cost. Approximately 35 kilograms of Zinc is used per tonne of galvanised steel sheet.Worldwide, Nearly half of the world's annual consumption of over nine million tonnes is used to protect about 100 million tonnes of steel. Galvanised steel is used for applications such as sheet roofing, car bodies and housing construction frames. The demand for Zinc is therefore highly responsive to movements in the residential construction and motor vehicle manufacturing industries. The remaining zinc consumption is for making paint, chemicals, agricultural applications, household appliances and fittings, in the manufacture of electrical components, in the rubber industry, TV screens, fluorescent lights and for dry cell batteries. Thus, Zinc finds its uses in several core sectors like Automobile, Construction, Chemical, Rubber, Pharmaceutical and Alloy-manufacturing industries. Following chart illustrates the use of metal across various industries
OCTOBER 2007

ZINC PRODUCTION:

There are zinc mines throughout the world, with the largest producers being China, Australia and Peru, in that order. In 2005, China produced almost one-fourth of the global zinc output, reports the British Geological Survey. The largest producing zinc mine in the world is the Red Dog Mine located in Northwest Arctic Borough, Alaska and operated by Teck-Cominco. This massive mine produces over 600,000 metric tons of zinc concentrate per year. World Zinc production grew by 4% to 10.7 million tonnes in 2006. An additional 640,000 tonnes of Zinc metal is forecast to be produced in 2007, enabling a 6% rise in total output to 11.3 million tonnes. The increase in global production will come from a number of mine expansions and new projects that, in turn, reflect growing explorations budget in recent years. Global exploration budget have increased by approximately 150% since 2002. Increases to supply are expected to come on line progressively over the medium term. For example, San Cristobal in Bolivia (capacity of 167000 tonnes a year) and Cerro Lindo in Peru (capacity of 110000 tonnes a year) are both due to be commissioned in the third quarter of 2007. Herald Resources’ 220 000 tonnes a year Dairi mine in Indonesia is yet another mammoth project. EuroZinc is also planning to restart the Aljustrel mine (80 000 tonne capacity) in Portugal. Over the medium term, four large confirmed projects in Canada, Mexico, the Russian federation are projected to add an extra 700000 tonnes to global capacity. In addition to this, a number of smaller projects, amounting to at least 400 000 are also expected to be completed. This increase in capacity, combined with the new projects and expansions in 2007, is

projected to result in world Zinc production reaching 13.9 million tonnes by 2012. Production in Canada is forecast to increase significantly as a number of new mines start up, with expected capacity of approximately 330000 tonnes a year. Three projects are due to start production in 2007, increasing Canadian output in short term by around 120000 tonnes. However the largest project, the Perseverance mine, owned by Xstrata, which is expected to produce 115000 tonnes Zinc a year, is not forecast to start up until 2009. Over the medium to long term, countries in Africa may emerge as major producers of Zinc. International investment by Chinese and Australian companies in African continent has already begun to pay off.

ZINC: MINE PRODUCTION
Thousand tonnes (Zinc content) Annual Totals Jan-Jun 20032004 2005 2006 20062007 Europe 10131007 1057 1035 511 544 Africa 258 352 414 376 187 201 America 37443568 3524 3449 16841861 Asia 30573507 3832 4220 20722307 Oceania 14471298 1329 1321 669 690 World Total 95209733101551040051245603

GRAPHICAL REPRESENTATION OF WORLWIDE ZINC MINE PRODUCTION GEOGRAPHICHAL DISTRIBUTION OF ZINC MINE PRODUCTION

ZINC: METAL PRODUCTION
Thousand tonnes Annual Totals Jan-Jun 2003 2004 2005 2006 2006 2007 2744 2720 2559 2497 1243 1304 197 260 274 255 143 141 1936 1993 1883 1845 886 933 4450 4906 5057 5612 2697 3067 553 474 457 463 214 244 9879 10353 10229 10672 5182 5690

Europe Africa America Asia Oceania World Total

GRAPHICAL REPRESENTATION OF WORLDWIDE ZINC METAL PRODUCTION

GEOGRAPHICAL DISTRIBUTION OF METAL PRODUCTION OF ZINC

TOP ZINC PRODUCING COUNTRIES*

*based on 2005 data

DEMAND AND CONSUMPTION OF ZINC :ZINC: METAL CONSUMPTION
Thousand tonnes Annual Totals 2003 2004 2005 2006 Europe 2780 2837 2686 2759 Africa 173 194 204 199 America 1958 2126 1904 2036 Asia 4664 5245 5572 5781 Oceania 267 263 253 273 World Total 9841 10666 10617 11049 Jan-Jun 2006 2007 1354 1467 100 103 989 961 2842 2988 123 140 5408 5659

GRAPHICAL REPRESENTATION OF WORLWIDE ZINC CONSUMPTION

GEOGRAPHICAL DISTRIBUTION OF ZINC DEMAND

TOP ZINC CONSUMING COUNTRIES

WHAT LIES AHEAD:FUTURE OUTLOOK FOR ZINC
When it comes to future outlook for Zinc, one needs to take into account the historical price behaviour, and LME warehouse stock, as well as demand and supply dynamics that are going to influence the metal’s price in the future.

LONDON METAL EXCHANGE PRICE GRAPH FOR ZINC (SPOT PRICES) SEPTEMBER 2003 to 2007

LONDON METAL EXCHANGE WAREHOUSE HISTORICAL DATA FIVE YEAR WAREHOUSE STOCKS DATA

ONE YEAR WAREHOUSE STOCK DATA

From 610,000 tonnes in June 2005, inventory position is now down to 65375 tonnes. Zinc LME stock inventories, except for a few brief lulls have been depleting on a daily basis over the last few months. Zinc stocks are forecast to decline by 35 per cent to 1.9 weeks of consumption by the end of 2007 as a forecast 5 per cent rise in metal output to 11.2 million tonnes again falls short of consumption.

ZINC SUPPLY DEFICITS*:
Zinc Consumption – Zinc Metal Production = -377,000 tonnes Zinc Consumption – Zinc Mine Production = -649,000 tonnes Zinc Metal Production – Zinc Mine Production = -272,000 tonnes (concentrate shortage) * 2006 figures

Global consumption of Zinc grew by 4% to 11 million tonnes in 2006 and is forecast to grow a further 3% in 2007 to 11.4 million tonnes. Over the medium term, growth in consumption is projected to average 4% a year, bringing world consumption of zinc to 13.9 million tonnes by 2012. The International Lead and Zinc Study Group (ILZSG) expects global zinc consumption to increase by 3.9% this year and estimates 2007 demand to rise by another 2.6%. China is by far the world's largest zinc consumer as it accounts for 30% of total global consumption, three times that of the next closest country, the United States. The ILZSG expects China's zinc demand to increase by 6.9% in 2007. Zinc prices rose substantially in 2006, reaching a record US $4619 a tonne in late November. Prices are expected to remain high in 2007 as global demand, particularly from Asia continues to expand. With consumption of Zinc forecast to exceed production for a fourth year in a row, there is expected to be another drawdown in global Zinc stocks in 2007. Output from new mines is expected to fill the gap between the production and consumption by 2008 and stabilise stocks. Over the medium term, supply growth is

expected to be sufficient to meet increased demand, and prices in real terms (2007 dollars) are forecast to weaken around US $ 1670 a tonne. Zinc prices continued to rise in 2006, bolstered by strong demand, supply constraints and the continued drawdown in stocks. Prices increased 137% year on year to average US $ 3276 a tonne in 2007 as demand continues to exceed faster than supply. Total Zinc stocks held by consumers, producers and in London Metal Exchange (LME) warehouses fell to 495000 tonnes by the end of 2006, equal to 2.3 weeks of consumption and the lowest since 1991. Global stocks are expected to fall further as consumption exceeds supply, but are projected to increase over the medium term to 2.6 weeks of consumption by 2012. In real terms (2007 dollars) prices are expected to fall towards the end of the outlook period as increased production provides more than enough supply to meet growing demand. Increased supply capacity (from projects such as San Cristobal in Bolivia), expected to begin coming on line after June 2007, is forecast to facilitate some easing of prices toward the latter part of the year before further increases in production contribute to prices easing further in 2008 and 2009. One uncertainty in the outlook for prices is the potential for Zinc production to be substantially higher than anticipated. The majority of Zinc mine production in China is sourced from relatively small mines, between 10,000 and 20,000 tonne capacity, that take relative short time to start production. Production from these small mines is highly responsive to prices, and hence if prices remain high for

longer than, say 2 or 3 years, more and more of these mines may begin production, resulting in significant additional supply. A combination of increased smelter capacity and expanding mine output may result in much higher Zinc production in China than current forecast. High treatment charges are encouraging the expansion and construction of new smelters close to mines in the west of China. Based on recent experience, it appears that Chinese smelters with a capacity of 200000 can be constructed in around 2 years. The combination of new mines and smelters is expected to contribute to significant growth in Zinc metal production. Refined Zinc production in China is expected to rise by 10% in 2007 and again by same proportion in 2008. Being the leading producer and consumer of the metal, China is an important link when it comes to Zinc. In China, Zinc is primarily used principally in country’s growing Steel industry for galvanizing and as China’s Steel industry expands further, its appetite for the metal will continue to rise. The majority of the increase in demand for galvanized Steel in China is expected to come from the construction and manufacturing sectors. Construction growth driven by ruralurban migration is projected to flow through to growth across a range of major infrastructure development. Massive infrastructure development for the upcoming 2008 Olympics in China is yet another factor which will continue to push up the demand for Zinc. Strong growth in industries such as motor vehicle manufacturing is also increasing the demand for Zinc. As

per capita income rises in China, local demand for cars too is rising rapidly. China is now the world’s second largest market, after the United States. Production and sales of cars grew by 25% and vehicle exports more than doubled in 2006. India is yet another key region, where growths in infrastructure development in sectors like Power, Refineries, Ports, Railways, Roads and Bridges has given a boost to Zinc demand. The growing demand for motor vehicle in India is also emerging as an important driver of the demand for Zinc. As far as United States is concerned, there is a growing shift towards the use of galvanized steel in housing construction from traditional timber frames. However a downturn in housing sector in US in 2007 is expected to hit Zinc demand. However, the US housing construction is expected to recover over the balance of the outlook period and contribute to the US Zinc consumption. Over the medium term, the consumption of Zinc in steel and motor vehicle manufacturing industry in both US and Europe is projected to remain constant. The combination of increased competition from China’s steel industry and a downturn in motor vehicle manufacturing, particularly in the United States is projected to result in flat or declining consumption of Zinc in both regions.

PRODUCTION, CONSUMPTION AND WAREHOUSE STOCK (LME) FORECAST FOR ZINC

*Source: Abareconomics, Australia

In summary, demand for the metal will remain attractive, but if this demand is balanced by more and more of supplies, then in medium term, Zinc prices may fail to take off. Of particular importance are the new mines projects that are going to start their production from late 2007-early 2008. Since most of them are supposed to be high capacity projects they may go a long way in easing the Zinc demand in medium to long term. Thus, any developments on supply front needs to be watched closely. All this, and many more issues related to Zinc will come up for discussion at International Zinc Conference going to be held at Bangkok, Thailand (10th –12th September 2007). ZINC : COUNTRYWISE PRODUCTION DATA

COUNTRY Algeria Argentina Australia Bolivia e Bosnia and Herzegovina Brazil e Bulgaria Burma Canada Chile China Congo (Kinshasa) e Ecuador Finland e Georgia Greece Honduras India e e Iran Ireland Japan Kazakhstan e Korea, North Korea, Republic of Macedonia Mexico Morocco 4 Namibia Peru Poland Romania Russia Saudi Arabia Serbia and Montenegroe South Africa Spain Sweden Thailand Tunisia 5 Turkey United States e Vietnam Total

1999 9,808 34,192 1,163,000 146,316 300 98,590 r 10,200 279 963,321 32,263 1,480,000 -100 e 20,000 r 400 19,619 31,095 145,000 80,000 226,000 64,263 288,300 100,000 9,832 7,900 r 362,811 111,703 35,140 899,524 154,800 26,536 132,000 3,161 1,000 69,733 110,000 174,400 24,000 49,066 545 852,000 18,000 7,960,000r

2000 10,452 34,858 1,420,000 149,134 300 100,254 r 9,400 437 1,002,242 31,403 1,780,000 215 100 30,493 200 16,900 31,226 144,000 90,000 262,877 63,601 325,000 100,000 11,474 12,200 r 392,791 103,064 39,126 910,303 156,900 27,455 136,000 e 3,000 2,500 62,703 201,000 176,788 27,000 41,247 39 852,000 16,000 8,770,000 r

2001 10,693 39,703 1,519,000 141,226 300 111,432 r 12,100 467 1,012,048 32,762 1,700,000 1,014 100 36,253 r 350 31,700r 48,485 146,000 120,000 225,135 44,519 344,300 100,000 5,129 6,300r 428,828 89,339 r 37,622 1,056,629 152,700 r 29,786 124,000 e 3,300 1,200 61,221 164,900 156,334 r 15,300 e 37,900 37 842,000 16,000 8,910,000r
r

2002 8,576 37,325 1,154,000 r 141,558 300 r 136,430 13,000 re 350 894,399 r 36,161 1,550,000 r 1,000 100 34,100 r 400 33,000r 46,339 129,000 r 120,000 r 252,700 42,851 390,000 100,000 r 99 2,100r r 446,104 r,e 91,000 r 42,685 r 1,221,830 r 152,200 25,000 130,000 e 3,000 1,000r r 64,173 r 69,900 r 148,600 r 33,600 r 35,692 e 35 780,000 16,000 8,380,000r
r

2003

e

5,201 37,000 3 1,480,000 p 144,985 300 200,000 13,000 300 1,000,000 36,200 1,650,000 1,000 100 3 38,900 400 20,000 46,500 162,000 120,000 250,000 3 44,574 3 395,000 100,000 -2,500 460,000 70,000 3 60,500 1,250,000 150,000 25,000 125,000 3,000 1,500 3 41,239 70,000 3 186,900 3 32,900 36,000 35 738,0003 16,000 9,010,000

3

ZINC : WORLD SMELTER COUNTRYWISE PRODUCTION
Country Algeria, primary and secondarye Argentina: Primary Secondary Total Australia: Primary5 Secondary Total Belgium, primary and secondary Brazil: Primary e Secondary Total Bulgaria, primary and secondary Canada, primary China, primary and secondary e Czech Republic, secondary Finland, primary
e e 3

2000 34,000 36,359 2,910 39,269

2001 34,000 39,727 3,180 42,907

2002 261,364 38,699 3,098 41,797

2003 32,200 36,500 r 2,500 39,000 r
r

2004 25,000 31,500 2,500 34,000
4 4

e

490,000 4,500 494,500 251,700 191,777 7,000 198,777 84,200 779,892 1,980,000 r 150 222,881
e

554,000 4,500 558,500 259,300 193,061 7,000 200,061 88,600 661,172 2,040,000 r 250 247,179 347,000 358,300 207,000 25,000 232,000 73,000 177,800 541,277 142,777 684,054 277,100 60,000 508,000 52,000 303,810 -204,800
r r e

567,000 4,500 571,500 260,000 e 249,434 7,000 256,434 83,000 793,475 2,100,000 r 200 235,300 350,000 r 378,560 231,400 24,000 255,400 82,000 176,000 547,183 126,723 673,906 286,300 60,000 600,027 56,000 302,122 35
r r r

553,000 4,500 r 557,500 244,000 e 251,000 7,000 r 258,000 r 86,800 761,199 r 2,320,000 r 250 265,900 253,000 r 388,112 253,900 24,000 277,900 84,000 e 123,000 532,704 153,411 686,115 279,000
r r r r r

473,000

4,500 4 477,500 263,000 259,000 7,000 266,000 87,000 805,077 4 2,500,000 250 4 235,000 260,000 364,000 238,400 24,000 262,400 105,000 130,000 534,830 4 132,417 4 667,247 316,500
4 4 4

France, primary and secondary Germany, primary and secondary India: Primary e Secondary Total Iran Italy, primary and secondary Japan: Primary Secondary Total Kazakhstan, primary and secondary Korea, North, primary and e secondary Korea, Republic of, primary Macedonia, primary and e secondary Mexico, primary 6 Namibia Netherlands, primary
7 e

3,500,004 4 176,000 25,000 201,000 490,004 4 541,704 157,047 698,751 262,200 60,000 473,897 69,800 235,073 -216,800
r

4

60,000 r 647,500 28,000 r 320,364 47,436 223,000
r

60,000 671,000 -320,000 4 119,200 225,000

203,000

e

Norway, primary Peru, primary Poland, primary and secondary Portugal Primary Secondary Total Romania, primary and secondary e Russia, primary and secondary Serbia and Montenegro, primary and secondary Slovakia, secondary South Africa, primary Spain, primary and secondary Thailand, primary United Kingdom, primary and secondary e
e e

125,800 199,813 173,000 e -3,600 3,600 51,900 230,000 8,291 1,000 103,000 386,300 77,525 760,004
r

145,000 r 204,646 174,700 -3,600 3,600 47,200 237,000 13,467 1,000 109,000 74,129 90,000
r

r

145,000 172,688 158,900 -3,600 3,600 r 51,600 244,000 1,478
r

r

142,000 r 202,076 153,300 r -3,500 3,500 r 52,000 r 253,000 62
r r

r

140,000 195,692 153,000 -1,500 1,500 50,000 240,000 100 1,000 104,000 525,000 103,000 --

1,000 105,000 e 488,000 r 105,000 98,000

1,000 115,000 519,000 r 107,000 14

SOURCES:

1. ILZSG.COM (INTERNATIONAL LEAD AND ZINC STUDY GROUP) 2. WIKIPEDIA.COM 3. BLOOMBERG.COM 4. REUTERS.COM 5. MARKETWATCH.COM 6. DOLLARDAZE.COM 7. ABARECONOMICS.COM 8. KITCOMETALS.COM 9. BROOKHUNT.COM 10. REUTERS DATABASE 11. BRITISH GEOLOGICAL SURVEY

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