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China's latest zinc, copper data positive for Teck Cominco

Teck Cominco Ltd. and other western world producers of zinc and copper can take comfort in the latest metals trade data out of China, according to Desjardins analyst John Hughes.

On Monday, the Chinese government said that the country imported net refined zinc of 13,592 tonnes in May versus net imports of 4,672 tonnes in April and an average monthly rate of 1,083 tonnes in the first four months of the year. Total net imports from January to May 2008 were 17,926 tonnes or 43,046 tonnes annualized, which compares favourably to Mr. Hughes net export forecast of 50,000 tonnes for 2008.

China also reported solid data for refined copper with net imports at 76,162 tonnes during the month. For the year so far, net imports equal 562,563 tonnes for a annualized rate of 1,351 KMT versus the analyst's estimate of 1,200 KMT.

"On the whole, we expect Chinese demand for western world produced refined copper and zinc to remain strong, and reiterate our 2008 average metal price forecasts for
zinc and copper of US$1.05/lb and US$3.50/lb, respectively." Mr. Hughes said in a note to clients.

The analyst said the May data indicating continued strong domestic demand for zinc should ultimately lead to rising zinc prices, which have been under pressure in recent weeks by persistent increases in the LME exchange inventory.

"Despite speculation of dissipating demand for zinc, we believe the zinc market will remain relatively ‘tight’, returning to a balanced market (supply = demand) in 2009 after recording a surplus of 200 KMT in 2008." he wrote.

Mr. Hughes added that China's strong demand for both copper and zinc markets is good news for Teck Cominco and reiterated his "buy" rating and $62.10 price target on the stock.

"We expect copper and zinc should represent 57% of Teck Cominco’s consolidated revenue in 2Q08 (vs 71% in 2Q07), with strong copper prices compensating for the recent weakness in zinc prices," he told clients.

"However, the growing influence of the sale of metallurgical coal at record high levels is expected to displace the traditional revenue drivers over the next several quarters."

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