LONDON, Jan 22 Reuters Until zinc demand picks up significantly and the market stops focusing on projected surpluses of the metal used to galvanise steel, price rallies triggered by production cuts are unlikely to be sustained.

On January 15, Nyrstar announced it would suspend its Budel smelting operations in the Netherlands due to high energy costs. Zinc prices on the London Metal Exchange LME on that day hit 2,615 a metric ton, the highest in more than a week.

But since then prices have dropped 6 to around 2,450.

The only way to get higher zinc prices is higher demand; you can39;t cut your way to higher prices. The solution to weak demand isn39;t higher prices, said Jay Tatum Portfolio manager at Valent Asset Management.

An important gauge of demand for zinc and other base metals are surveys of purchasing managers in manufacturing around the world, which for much of last year showed shrinking activity.

This has meant demand growing at a slower pace than supply, particularly in top producer and consumer China, where consumption failed to pick up as expected after the country abandoned its zero COVID policy.

We expect European zinc demand to decline 4.0 in 2023 due to weakness in the manufacturing sector and construction sector, HSBC analysts said in a note, adding that they expect demand to grow marginally in North America.

The weak property sector in China has resulted in lower demand for zinc, largely offset by robust demand from nonproperty sectors.

HSBC…