Prices of zinc, the world’s fourth-most consumed metal, are expected to remain flat in 2013 amid a production surplus and high inventories. This is despite a projected improvement in demand. But the demand-supply dynamics could get skewed over a longer time frame.
According to the International Lead & Zinc Study Group (ILZSG), supply of the metal is expected to outstrip demand by 2,93,000 tonnes in 2013, compared to a 1,53,000-tonne surplus in 2012. The increased output will easily tide over a projected 3.8 per cent improvement in demand to 13.19 mt in 2013.
Demand from China, India and Brazil is likely to play a large role in determining the outlook for the base metal. A ramp-up in consumption in China has resulted in the country becoming a net importer of the metal. Zinc demand is also projected to grow in India and Brazil, which will require the mineral for use in fertilisers.
Zinc is widely used as an agent in galvanisation, where iron or steel is coated to protect the metals against corrosion. Consequently, the key end-users are in the construction sector, while other applications for zinc are in the automotive, electrical and machinery industries.
Supply chain Uncertainty
Coupled with new and efficient zinc battery technologies and galvanising activities, demand for the metal could potentially rise by 5,50,000 tonnes over the next few years, according to ILSZG estimates. The sharp rise creates an uncertainty over when and where new supplies will come from. In particular, finding finance to develop mines in a timely fashion will be a challenge amid the vitiated global business sentiment.
Nevertheless, there is also a risk of prices going south in case global economic conditions deteriorate, with the closure of consuming industries in the European Union in 2012 estimated to have impacted demand in the region by 5.5 per cent. The flagging fortunes of the steel sector — in which zinc is a key input ingredient — is of particular concern, with the slowdown in China and turmoil in Europe forcing manufacturers of the infrastructure-building material, such as ArcelorMittal, to idle their plants.
In India, zinc production has been on the rise. In 2010-11, Indian production of zinc mounted to 7,43,376 tonnes, a 22 per cent rise in comparison to the previous year, according to a reply to a Lok Sabha question by Mines Minister Dinsha Patel. The country is ranked seventh in the world in terms of its zinc reserve base at the start of the 11th Five-Year Plan, but has since moved to fourth position, thanks to exploratory success.
Demand for zinc in India has been pegged at 6 lakh tonnes in 2012-13 and is projected to grow to 8.8 lakh tonnes by 2016-17. The Department of Mines has forecast that production will be ramped up to 9 lakh tonnes and will increase incrementally up to 2015-16. This will enable the country to meet most of its demand with domestic resources.
But zinc prices in India are primarily fixed on the basis of rates in the international spot market. What is more, dollar exchange rates could also play havoc with domestic zinc prices.
Zinc prices have been range-bound since September 2011. The metal currently trades at $110.50/kg in the domestic market with key support at $96/kg and resistance at $114 per kg. On the London Metal Exchange, zinc is being quoted at $2,085 a tonne, with key support at $1,740 a tonne and key resistance at $2,150 a tonne. In the long run, the World Bank forecasts prices to peak at $2,500/tonne in 2014 before settling around $2,200/tonne before the end of the decade.