Zinc on a strong footing, page-56

Metals rebound restores some luster to lowly zinc and nickel

Peter Koven | July 14, 2016 5:46 PM ET
More from Peter Koven | @peterkoven

After many months in the gutter, two of the world’s least-loved metals are enjoying an honest-to-goodness turnaround.
Zinc and nickel are both soaring this summer after recovering from shocking depths early in the year. Zinc touched US$1.00 a pound on Thursday for the first time since mid-2015, while nickel jumped to a nine-month high of US$4.73 a pound. Zinc is up 48 per cent from its January low, and nickel is up 38 per cent in the same period.
These moves were a long time coming. For the past two years, experts have been warning of major supply-side problems in these markets and predicting that rallies were inevitable. It took a while for them to materialize, in part because of high inventories. And now that they are finally here, there is debate about whether they are sustainable.

No one should think the current prices are great ones. At US$1.00, zinc is still only half the value it reached at its peak in 2007. Nickel, meanwhile, topped out at US$24 that same year. It is just a tiny fraction of that today.

There is a little more optimism about zinc. The market has been in deficit for the last couple of years, which has whittled down inventories. And the deficits are likely to get bigger. Several of the world’s largest zinc mines have closed in recent years, and there is no major source of supply coming on to replace them. Melek said a supply shortfall of around 400,000 tonnes is likely in 2016, followed by a shortfall of 500,000 tonnes in 2017.
There are concerns that hidden zinc inventories could materialize (a big problem in recent years), and that demand will be weaker than expected. The market is also simply due for a pullback. But overall, there is some optimism that this long-awaited rally is for real.
“If I were comparing nickel to zinc, I’d be much happier to get long zinc at this point,” Melek said.
Financial Post
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