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Widening zinc deficit expected to galvanize prices Friday, April 04, 2014 by Proactive Investors
The zinc metal market went into deficit in 2013 for the first time in five years, driven by the continuing appetite from China. Zinc prices are expected to move higher as some of the world’s biggest producing mines close and demand for the base metal, mainly used to galvanize steel, continues to grow.
Glencore Xstrata’s (LON:GLEN) Brunswick and Perseverance mines closed last year, Vedanta Resources’ (LON:VED) Lisheen mine in Ireland is winding down and zinc production from MMG’s Century mine is expected to stop in 2015.
However, there are only a handful of new zinc projects coming into production to replace this lost output.
Initial data compiled by the International Lead and Zinc Study Group (ILZSG) showed that global usage of refined zinc metal exceeded output by 60,000 tonnes in 2013.
Glencore Xstrata, the world’s biggest zinc miner, said the zinc metal market went into deficit in 2013 for the first time in five years, driven by the continuing appetite from China for imported metal and the recovery in physical demand in the US and South East Asia.
“We expect the supply deficit to widen this year, pushing prices higher as new mine capacity is matched by mine closures and simultaneous global demand growth in 2014E and 2015E,” said Troy O'Dwyer, analyst at Panmure Gordon & Co.
He said the average price for the metal - US$2,031 a tonne - so far this year was 6% higher than in 2013 and that he expects prices to rise to an average US$2,125/tonne this year.
“Global stockpiles have run down significantly since late 2013 to their lowest level since 2010 measured in days of consumption (a good proxy for supply constraints),” he said, adding that he expects inventories to decline further this year.
Depressed zinc prices in recent years have hampered large investment while some projects that are being developed have encountered delays.
“We expect to see key mine capacity leave the market in 2014E and 2015E. New capacity during this period is expected to be insufficient to match supply lost to mine closures as well as growing consumption driven by three key markets, China, the US, and Europe,” he said.
Nyrstar, one of the world’s biggest zinc producers, also said recently that the metal’s fundamentals are becoming attractive and noted that physical premiums for the delivery of high-grade zinc rose throughout 2013.
French investment bank Natixis said zinc entered 2014 with some of the best fundamentals among the base metals.
“Our forecasts for demand and supply anticipate that the global zinc market will move into a steadily widening deficit, which will generate real concerns about physical scarcity of metal over the course of 2014-15,” it said in its Metals Review.
Panmure’s O'Dwyer noted that Griffin Mining (LON:GFM) is London’s zinc pure play and that the company’s producing Caijiaying zinc mine offers exposure to strong production growth
TRF Price at posting:
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