Zinc prices were slightly lower on the London Metal Exchange on Friday, their second straight session of losses as a stronger US currency dented international investors’ demand for the metal. Meanwhile, trading conditions quieted on Friday amid China’s Lunar New Year holiday.
The holiday will leave factories closed for weeks in some cases and that, in turn, will mean lower demand for zinc in construction. Also, with major Chinese markets closed through Feb. 2, a reduction in speculative buyers will also impact the market. Zinc demand is highly dependent on China; therefore, with Chinese buyers and speculators absent from the market the metal will likely see a stronger reaction to other price influences, such as the US dollar. Also, thinner trading volumes could mean increased price volatility.
Zinc was one of the top-performing base metals in 2016. In January 2016 zinc’s low was $1,445 per ton, and now about one year later zinc is trading around $2753 per ton.
Zinc’s positive performance in 2016 came from increased demand for the metal in China and a dramatically tightening supply chain. Zinc’s major use is in stainless steel; therefore, demand for infrastructure and cars are the major factors behind zinc demand. When it comes to supplies, numerous supply cutbacks planned when zinc prices were low came into effect in 2016.
Even after the 2016 rally, Macquarie sees prices supported from continued supply tightness. Eventually, strong mine supply growth from China and Vedanta’s ramp-up of its Gamsberg project in 2018 will impact the market, but it will take awhile for balance. In the meantime, Macquarie sees zinc prices rallying to a peak in 2019, averaging over $2,800 per ton.
By
Leia Toovey
-
January 27, 2017 - 20:32 GMT
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