Will the bull rally of zinc slow down by the end of 2018?

  • Will the bluish white metal continue to see its positive move after a strong performance in the last 6-8 quarters?
  • Will the supply crunch continue to support prices?


The base metal prices have been escalating since early 2016, these were driven by strong global economic conditions, weakening of the dollar and supply disruptions of most metals. The winner so far in the rally has been the galvanizing metal.

Zinc is leading the pack with a whopping 48% (CAGR) gain, this is followed by aluminium with 23% (CAGR) increase in the past 2 years.

A positive trajectory of zinc, which started from 2016 onwards continued in 2017, this was again driven by a restricted supply. Its price surged by ~60% and ~30% YoY in 2016 and 2017 respectively. It also touched the high in a decade of ~3,500 USD/tonne (2017).

The supply crunch in the industry since 2016 was due to the closure of several mines, depleting resources and voluntary production cuts by the big players such as Glencore. These factors together offloaded ~1 million tonnes of zinc from the global supply in the past 2 years.

Glencore, the world’s largest zinc producer, concluded its two major mines, the Brunswick and Perseverance mines in Canada (2012). This was followed by a shuttering of two more depleted mines, which were; the Century in Australia and Lisheen in Ireland. These exhausted mines have deprived ~2 million metric tonnes to the market since 2012. Furthermore, to put a floor on the incessantly falling prices (2015), Glencore announced a deliberate cut in its production by 500,000 tonnes each year. It shelved the production at its Lady Loretta mine in Australia, Iscaycruz in Peru and reduced the output at McArthur River and the George Fisher mine in Australia.

Moreover, China (contributing 40% of the world’s mined zinc supply) added to the worsening situation and halted the production of the grey metal in 2016 due to the environmental concerns. This continued for a second year (2017) and the nation’s mined zinc supply declined by 5% to ~5 million tonnes.

On one hand, China reduced the global supply. On the other hand, the country being the top consumer of zinc (and other base metals) was too active on the demand front. Its consumption surged by 4% each in 2016 and 2017. Hence, owing to insufficient local production, it significantly increased the imports at 12% ([CAGR], 2015-17).

While the overall zinc market was marred by the supply side issues in the past couple of years, the major reasons can be summed up as broader low prices (2012-15) in nearly all base metals along with a declining grade of zinc metal in several mines across different locations globally. This forced miners to either cut down or stop production at mine sites, which lately pushed the metal into a deficit and hence, a strong uptrend in prices was seen. In the present scenario, there is a gradual movement in the reverse direction. In order to encash the bull run several major mining companies have already started or intend to restart the production of zinc. MMG (Minerals and Metals Group) resumed the production at its Dugald River mine in November 2017. In December 2017, Glencore declared that it would restart the activity at its Lady Loretta mine in the 1st half of 2018. Furthermore, New Century Resources acquired Century Mine (one of the biggest acquisition) in Australia from MMG (2017). The production is expected to begin from Q3 2018, this is projected to add 262,000 tonnes/year. Hindustan Zinc (a key miner in India) recently executed a large-scale expansion plan. It announced a 28% surge in the YoY production for the 9 months period (April to December 2017).

According to the International Lead and Zinc Study Group (ILZSG), the global zinc mined production is estimated to rise 5.1% to 13.62 million tonnes, while refined zinc metal output is anticipated to increase 3.6% to 13.71 million tonnes (2018). The production is expected to increase at all major mining locations except China due to the strict environmental laws. The global zinc production is broadly believed to increase from the 2nd half onwards (2018). However, it might still not be fully sufficient to replace the offloaded capacity (through the depletion of resources and cut in zinc production, including China’s major cut).

On the demand side, China and the United States of America are likely to be the key drivers as these nations are driven by the infrastructure spending in billions and will continue to keep the demand momentum going. ILZSG forecasts a demand for global refined zinc metal to rise 2% to 13.97 million tonnes. Hence, given the deficit of 495,000 tonnes (2017), there may be a surge of 3.6% in the supply (2018). This will be insufficient to meet the global demand. According to the ILZSG, 2018 is anticipated to witness a decline with a deficit of 263,000 tonnes.

A consistent supply crunch in the past few years has resulted in a substantial decline of the global inventory at London Metal Exchange and Shanghai Exchange. This fell from 1.2 million metric tonnes (2013) to 0.3 million metric tonnes (2017). The deficit will continue in 2018 and the inventory is further expected to decline.

Therefore, in a nutshell, an increase in the supply is projected (2018) and this will be insufficient to meet the anticipated demand. Although, there may be a slight decline in the deficit. However, this will sustain during 2018. Hence, prices are expected to remain range-bound; USD 3,200/tonne to 3,500/tonne (2018). However, a surge in the production from 2019 onwards may result in the balance of demand and supply. Although, it will take few years to build back a 1 million metric tonne inventory. The prices are expected to stay above $3,000 levels up till then.

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