Where Are Zinc Prices Going - Zinc Market Overview September 2019
Zinc Mine in Namibia - Skorpion Zinc Mine
The Cerro Lindo zinc-copper-lead mine from Nexa Resources in Peru, which produced 2018 130.000 tonnes of zinc concentrate. Source: Nexa Resources.
Where are the zinc prices going? It is a question that produces significantly different opinions and forecasts from the bullish and bearish camps.
While zinc's macroeconomic fundamentals may well support more robust prices, the metal price has fallen to $ 1,63 per pound since its decade-long rally. ($ 3.595 per ton) Beginning 2018 and has been trying to get over $ 1,36 per pound. or $ 3.000 per ton to come. At the time of the press conference, the price of the anti-corrosive metal on the London Metal Exchange (LME) was in the range of 1,10 $ per pound. (2.420 $ per ton), near its low for 2019.
Against the weakness of zinc is the indicator that the global refining stocks have fallen to multi-year lows. The refining zinc stocks in the LME warehouses are 77.000 tonnes, while the reported stocks on the Shanghai Futures Exchange are 89.500 tons.
What are the stocks? 250.000 tonnes of global refined inventories currently reported correspond to a week of global consumption, slightly above the lows of the beginning of this year, when only five days of supplies were in the metal warehouses. However, these historically low refined stocks have not been able to provide a significant boost to prices.
Consensus long-term zinc price forecasts reflect this sentiment and have recently been downgraded from many banks and brokers to 1,00 to 1,10 $ a pound.
The rhetoric of the world trade war last year, especially between the US and China, has captivated most commodities and materials with subdued demand, limited industrial growth expectations, and lower raw material consumption, leading to an increasing decline in sentiment.
This negative macroeconomic sentiment hit Asian economies more than most, followed by Europe.
One of China's most important economic barometers, the Manufacturing Purchasing Managers Index (PMI), measures economic activity in Chinese manufacturing on a monthly basis. The PMIs have shown a general negative trend since the beginning of 2018 and missed numerous forecasts in the past year. With a decline on 49,4 in June, PMIs have fallen below 50 for four of the last six months of this year. The 50 point level separates the upward expansion from the contraction down. The China PMI for July is forecast with 49,6.
Of the base metals, zinc has recently outperformed its sister metals in particular, having fallen by as much as 2018% from its highs at the beginning of 35. Copper and nickel suffered a decline of up to 20% and 31%, respectively.
"The bull run in the zinc market is nearing its end," said Orest Wowkodaw, managing director and senior research analyst at Scotia Capita, in a July 11 research note. "While visible zinc stocks have finally hit critically low levels as predicted, negative macroeconomic sentiment has helped largely ruin participants."
Zinc mining and operations of Nexa, one of the world's largest zinc producers
The closure of three global fixed mines (Lisheen in Ireland, Braunschweig in Canada and Century in Australia) between 2013 and 2016, as well as production cuts in some of the Glencore (LON: GLEN) mines in 2016, resulted in a significant shortage of the zinc concentrate supply market the most important trigger for the bull run of the metal 2016 to 2018. However, this has lessened recently as 2018 is launching an increasing supply of concentrates and is expected to grow in the coming years. This supply surge could offset the deficits and bring the balance of refining metals back into a surplus scenario this year.
According to the latest "Q2 / 2019 Preview Equity Research Note" from TD Securities, the supply of zinc ore is increasing. "Against a backdrop of weaker, more granular demand, the supply of mines has increased, with several large mines operating, including Gamsberg (in South Africa) and Dugald River (in Australia)," the bank said. “The restart of Century operations (also in Australia) through the processing of mine waste also contributes to the offer. Wood Mackenzie predicts annual mine supply growth of 3,2% in 2019 and 6,7% in 2020. We anticipate that mine supply could be negative through 2023 as lower prices discourage new projects. "
In addition, despite more than a decade of strong growth in China's mine output year-on-year, production dropped from 2016 to 2018 due to stricter environmental controls. But the mood now tends again to an increasing production by Chinese mines. China is considered the world's largest zinc miner, with one third of the global supply. Scotiabank's recent fundamental review of key commodities is assuming growth in Chinese mine supply from 2019 to 2021 by 2,5% per annum.
Zinc ore production and zinc smelting in the USA
The processing of zinc concentrate from the mines into refined, industrial-grade zinc lies in the smelting plants. While there has been excess smelter capacity for smelting in most of the past years, in recent years more environmental regulations in China have reduced their capacity and dampened refined production, although modest growth has been modeled. This gradual increase in Chinese refining capacity as well as small expected increases in Western capacity could help surplus the refining zinc market over the next year.
Despite these modest capacity increases in the melt, the treatment costs (TC) charged by the smelters to refine their concentrate have increased. The International Benchmark TCs, negotiated annually between smelters and zinc producers, rose from a multi-year low of 147 dollars per tonne zinc concentrate in 2018 to around 245 dollars per tonne for 2019. Even more dramatic is the rapid rise in the spot-TK market, which has recovered from a low of 19 $ / t in the beginning of 2018 to a high of 275 $ / t earlier this year.
Unfortunately, the increasing supply of concentrate for the miners has increased the benefit to the smelters.
The world's zinc consumption is an average of 14 million tons per year. Urbanization and industrialization are driving global zinc consumption, with construction, transport and infrastructure being the main sectors for its use.
Zinc is primarily used for its anti-corrosive ability and serves as an alloying metal to prevent rusting of steel. This galvanizing accounts for 60% of the worldwide use of the metal. Other key applications include die-casting alloys, brass production, and oxides and chemicals.
According to Scotiabank Research, global zinc demand development from 2012 to 2017 averaged 2,3% per year, but 2018 saw negative growth of 0,3%. The bank also forecasts negative growth in demand for 0,5% this year, followed by a slight increase in 1% consumption in 2020 and 1,5% in 2021 year.
Zinc is expected to remain by far the primary end user of zinc, but potential sources of demand are agriculture. The International Zinc Association is a strong supporter of the Zinc Nutrient Initiative and Zinc Saves Kids (along with UNICEF), which has championed and implemented the use of zinc as a micronutrient in fertilizers.
The Zinc Nutrient Initiative has launched more than 500 trials in eight countries - China, India, Bangladesh, Democratic Republic of the Congo, Malawi, Brazil, Peru, and Mexico - identifying agricultural soils as low in zinc. The addition of zinc to fertilizers has resulted in a significant increase in crop yields and an increase in the nutritional value of the product being grown.
The zinc battery technology is another emerging use of the metal that could bring future growth. However, it is still at an early stage and the battery market can be very dynamic. Zinc air battery technology has come into commercial use and provides cost-effective charging options for the storage of utility power.
Mostly mined as a primary raw material, the zinc mine area is dominated by a few, large, combined mining companies: Glencore, Hindustan Zinc-Vedanta and Teck, which together make up over 20% of the world's mining supply.
Other leading zinc producers include Nexa Resources (TSX: NEXA), Boliden, Sumitomo, Minera Volcan, Trevali Mining (TSX: TV) and Lundin Mining (TSX: LUN).
Northern Miner, Mine.com, Institute of Rare Earths and Metals
