Overview of Zinc

Zinc — Acute Supply Reductions Have And Will Support Prices Higher

Zinc prices began 2016 at $0.70/lb and rose steadily through the year, reaching a year-to-date high of $1.32/lb in early-December. Zinc’s rise was a supply story through and through (Chart 4), in an industry that hasn’t seemed able to reduce production despite a persistent low-price environment (see: nickel, aluminium). First came the natural declines, with the depletion-prompted closure of the Century (Australia) and Lisheen (Ireland) mines taking 500 kt of zinc concentrate — the raw resource that is later refined into metal — off the market. However, these mines had been winding down for a while, and zinc had still found itself dragged down with the rest of the base metals complex through to the beginning of 2016. Glencore’s decision to economically idle another 500 kt of supply brought the market further into deficit, and, after breaking free of the base metal malaise, prices were able to rise from $0.73/lb at the beginning of the year to $1.32/lb by November (+81%). The decision to idle some of Glencore’s mine supply came before the zinc rally began in earnest, but it took time for the bearish base metals narrative to ease enough for the market to refocus on zinc’s acute supply challenges. The pace of these gains has been greater than anticipated, and the increasing net-length of speculative positioning leaves zinc particularly vulnerable to changes in sentiment. We expect the supply deficit to catch up with current bullish investor positioning, with prices forecast to average $1.25/lb in 2017 before declining inventories prompt a second rally into the $1.50-1.60/lb range in 2018.

Scotiabank Commodity Price Index
December 20, 2016

A Zinc Market Outlook by Frik Els, MINING.com

Zinc is the best performing base metal so far this year and measured from its six-year low struck mid-January today's $2,280 a tonne zinc prize is up 55%.

Zinc's prospects brightened considerably after the shutdown of two major mines last year – Australia's Century and the Lisheen mine in Ireland. The two mines had a combined output of more than 630,000. The shuttering of top zinc producer Glencore’s depleted Brunswick and Perseverance mines in Canada in 2012 brings total tonnes going offline since 2013 to more than one million tonnes.

While the pace of gains in 2016 is unsustainable, zinc prices are expected to rise steadily over the long term.

Glencore has been out in front when it comes to curtailing production to shore up prices and the Swiss giants' announcement of cutbacks inspired another leg up in the price. Glencore's first half production numbers showed a 31% output decline to 506,000 tonnes after the company idled mines in Peru and downscaled its Australia operations. Nyrstar's zinc mine output fell 39% over the same period and the Swiss company has cut capex by nearly two-thirds as it seeks to exit mining.

China is now forecast to have a mined zinc deficit of 390,000 tonnes in 2016, widening from a deficit of 9,000 tonnes a year ago.

China, top consumer and producer of the metal mainly used to galvanize steel, recently added fuel to the fire after Beijing ordered the shutdown of all lead and zinc mines in parts of Hunan province, the centre of Chinese production.

A new report by BMI Research says that while the pace of gains in 2016 is unsustainable, zinc prices are expected to rise steadily over the long term, averaging $2,000 a tonne in 2016 and $2,350 a tonne by 2020.

BMI's forecast represents an annual average gain of 3.9% to 2020, following an average annual contraction of 2% over the previous five-year period.

The better price environment is due to structurally weaker supply that will keep the global market in a deficit.

Shortage is most acute at mine level with ore and concentrate production forecast to drop by 6.8% year on year in 2016, according to the report. Total global refined output will shrink by just under 1% this year and return to tepid growth of less than 2% through 2020, outpaced by demand growth.

Sustained deficits will translate into a very tight-above ground stocks-to-use ratio according to BMI, with inventories representing less than 5% of consumption by the end of the decade compare to more than 11% this year.