updated position, page-13

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Yes, zinc prices have managed to gain about 50% since the beginning of the year. And, yes, this year also saw zinc stocks at the London Metal Exchange fall to their lowest level since 2005.
Yet, after six straight sessions of gains on the LME, zinc faltered on Tuesday on news that 8875 tonnes of the galvanising one had lobbed at a New Orleans warehouse. Bloomberg commented that inventory increases was putting off investors (and no doubt speculators); apparently the market expectation is that the present price levels are unsustainable, and traders are waiting for the retreat before placing orders.
Analysts have been almost universally bullish of late about the outlook for zinc. They are right about the fundamentals: the number of zinc mines that have closed or will be closed, the paucity of zinc exploration around the world over the past five years, and the relatively small number of potential new mines that are in the development pipeline.
Well, they have grounds for bullishness with the zinc price now at $US3243/t (as of close of LME trading overnight). The metal was just under the $2000/t mark in the 1980s, but had fallen below $1000 by 1993. It went below that when the 2000 dot-com crash happened; in December 2001 it bottomed at an average for that month of $758/t.
Macquarie is expecting zinc to remain strong for one to two years. Deutsche Bank is forecasting prices averaging $2500/t next year and $2750/t in 2017. But in many of the forecasts the analysts do hedge their bets by allowing for some pullback, possibly early next year.
Meanwhile the zinc players are pumping the story for all its worth. Canada’s Trevali Mining Corp is producing zinc (and lead) in Peru and in New Brunswick province. Its most recent presentation argues that zinc’s will be a very tight market for several years. With zinc consumption globally to rise by 3 million tonnes over the next five years, “it is estimated a zinc incentive price of $3600/t would be required to support the equivalent amount in new mine capacity to come on line”, Trevali said.
As the International Lead and Zinc Study Group pointed out last week, global zinc mine production in the January-June period fell by 6.1%, mainly due to output declining in India, Australia, Ireland and Peru.
This has all hit so suddenly, it is no wonder that the analysts are clambering to get on board the zinc story. As one commentator noted last week, how different it all was just a year ago: the zinc sentiment was bearish, as the world was seeing a zinc surplus; even as late as April prices were still below $1900/t. But that was better than January this year when zinc had averaged $1520/t.
The zinc deficit is expected to be 360,000 tonnes for 2016. The forced closure of Chinese mines is unlikely to be reversed by Beijing; nor can the depletion that has brought about mine closures in the West.
How this will work out in terms of overall Chinese output is not yet clear. (And we have to keep in mind that, although a China crash now seems remoter than it was earlier this year, that country’s transition from an industrial based economy consumer of ever-growing quantities of metals to one when growth will rely more on the consumer and service industry sectors is still very real and unstoppable.)
In 2015 China produced 4.9 million tonnes of zinc. The second largest producer, Australia came good with 1.58Mt.
So, yes, zinc is looking good. But nothing in commodities is ever signed, sealed and delivered. It will be interesting this time next year to look back at present market sentiment. For the moment, though, anyone with an advanced zinc project should be pressing on with all speed.
And we also have to remind ourselves that what is happening now is a very small blip in the zinc story. The Geoscience Australia website deftly reminds of the metal’s long history: “Zinc was used in Rome and China more than 2000 years ago as a component of brass which is a zinc-copper alloy. Zinc metal was first smelted from zinc ore in India in about 1200AD and is known to have been used in China soon after. Commercial production of zinc did not start in Europe until the middle of the 18th century and until 1860 in the United States”.