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Zinc Prices to decline over the outlook period

Metal News - Published on Fri, 11 Oct 2019

Image Source: business-standard.com
Australian government’s Resources and Energy Quarterly September 2019 said that Zinc prices have fluctuated in 2019. The London Metal Exchange zinc spot price breached USD 3,000 per tonne in April, as LME inventories reached an 11-year low of 50.000 tonnes. It then started to decline, falling to USD 2,190 per tonne in early September the lowest it has been for three years. A number of tensions are at play. Zinc inventories are at record lows, owing to bottlenecks at Chinese smelters and the flow-on effects of a series of mine closures between 2013 and 2016. This helped boost prices in April 2019. However, it has not been enough to keep the price of zinc high in the face of deteriorating sentiment, an uncertain economic outlook and weak industrial output.

China's manufacturing purchasing managers index and industrial products outputs have trended lower this year, and trade policy uncertainty has weighed on economic activity in advanced economies. All this suppresses demand for a metal closely tied to the manufacturing and automotive industries.

Anticipation of a zinc supply is also crimping prices. While there was a slight decrease in Chinese refined zinc production in July, production has still increased 11% quarter-on-quarter, and shows signs it will continue to pick up speed. There are also a war of new or expanded zinc mines ramping up production (see Section 14.3), such that world mined production is expected to grow by 4.4% this year, after three years of decline.

With plenty of concentrate available, subdued demand, and Chinese smelters operating at greater capacity, the market for refined zinc is likely to return to a very small supply surplus this year, after three years of deficit.

Over the longer term, rising zinc production and softer demand should see the price of zinc decrease by an average of 6.0% per year over the forecast period —from an average of USD 2,594 per tonne during 2019 to USD 2,425 per tonne in 2021.

Known as the Great Protector1 for its anti-rust qualities, zinc’s fortunes are closely tied to steel production. Steel use is expected to rise the outlook period, albeit at a slower pace than in preuous years (see the steel chapter). Refined zinc consumption should follow suit; it is anticipated to increase by 568.000 tonnes from 2019 to 2021, or an average of 1.4% each year.

Emerging Asian economies are expected to continue playing an important role in fuelling zinc consumption. India, with its ambitious steel-making targets, will experience the highest demand growth from 2019 to 2021 an average of 6.2% per year. This is higher than China, which will average 3.2% growth over the forecast period, due to its slowing economy. Outside of Asia there will likely be a general decline in refined zinc consumption, as weakening industrial production dampens demand for the metal.

China accounts for around half of global zinc and steel consumption, and its appetite for zinc remains large, though stunted in the short term. From January to June this year, refined zinc usage has been only three tonnes higher than last year (going from 3,074.000 to 3,077,000 tonnes) which means it is unlikely that zinc demand will grow much this year. Trade tensions, subdued industrial production, and a devaluation of the yuan which curtails China's purchasing power appear to be the main causes

There is a degree of uncertainty surrounding the pace of China’s future economic activity and industrial production growth. While the government is implementing economic stimulus measures in an attempt to offset the impacts of trade frictions, these are more restrained than in previous downturns. China also contends with economic challenges of a deeper, structural nature, such as mounting consumer debt, an ageing population, and low productivity, which complicate future growth prospects. Notwithstanding this, China's rate of GDP growth remains robust and will continue to be one of the highest in the world, at raging between 5.5 and 6.0% over the forecast period. This growth should sustain zinc demand, though perhaps not at previous rates.

The forecast mined zinc production increase from 2018 to 2019 has been revised down from 6.2% to 4.4% compared to the June 2019 Resources and Energy Quarterly, because of weaker than expected production results between January and June this year. China and Peru — the world’s two biggest zinc producers experienced slightly negative growth in the first half of the year. Indian production growth has also been weaker, as the country naugates the transition from open pit to underground mining.

Mined output is expected to pick up pace in the second half of the year, as Vedanta Zinc International’s 250,000 tonne per year Gamsberg mine and New Century's tailing project ramp up production. It should continue to rise over the outlook period, as a number of projects come online in response to the zinc supply deficit that emerged in 2016.

Australia the world’s third biggest mined zinc producer will make a hefty contribution to the anticipated increase in global mined output. From mid-2017 to December 2018, zinc exploration spending totalled D 151 million almost equal to the total amount of expenditure for the three years prior to that. The results of this investment flurry have started coming to fruition, and mine production increased by 39.7% from 2017—18 to 2018—19.

Refined zinc metal supply has suffered a number of short-term set-backs in 2019, which is reflected in weaker than forecast figures for the first half of 2019. Rising Chinese production and an increase in mine output are expected to compensate for this, and global refined production is expected to grow in 2019, after four years of decline. This trend should continue over the forecast period total refined production is predicted to top 14 million tonnes in 2020 and grow to 14.4 million tonnes in 2021.

Refined production has faced complications in 2019. Smelters in China faced environmental restrictions, leading to bottlenecks. In addition,
Africa's largest zinc refinery was shut-up for five weeks because of a strike. This has meant that refined output actually decreased from January to June in comparison with the same period last year.

However. Chinese production has since picked up pace, increasing steadily since February. Increased concentrate output and high treatment charges prices charged by smelters for the cost of refining concentrates into pure zinc are expected to incentivise production over the coming months, helping push the global market into a small surplus by 2019.
WorldUnit20182019T2020r2021f2019T2020'2021f
Production
- minekt12.6981325413.9113.9284.44.90.1
- refinedkt131771378914.06614.3564.622.1
Consumptionkt1367713.68913.966142560.122.1
Closing stockskt8949941.094119411.210.19.1
- weeks of consumption 344411.17.96.9
Price
- nominalUS$/t29252.5942.442425-11.3-6-0.6
USc/lb133118111110-11.3-6-0.6
- real0US$/t2.9892.5942.3852320-13.2-8.1-2.7
USc/lb136118108105-13.2-8.1-2.7
 

Source :

Posted By : Rabi Wangkhem on Fri, 11 Oct 2019
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