Shrinking surplus to galvanize H2 zinc prices

Subramani Ra Mancombu Chennai | Updated on June 29, 2021

UN group forecasts demand to rise by 4.3%, output by 3.1%


Zinc prices in the global market are expected to rule firm over $,2,750 a tonne for the remaining part of this year on declining surplus, supply disruptions, including in smelting, Chinese demand and recovery in the world economy.

Zinc prices had hit a three-year high of $3,085 a tonne last month but have slid since then. Currently, zinc three-month contracts are quoted at $3,002 on the London Metal Exchange with cash offerings being made at $2,986.50.

Gains capped

Zinc, lead and tin have not gained as much as other metals in the global market. Prices of these metals have increased by less than 10 per cent since the beginning of the year compared with over 20 per cent for metals such as aluminium, copper and tin.

According to the International Lead and Zinc Study Group (ILZSG), an inter-governmental organisation, global demand for refined zinc metal is forecast to rise by 4.3 per cent to 13.78 million tonnes (mt) this year. This is against a 3.9 per cent decline in demand last year.

The ILZSG, set up by the UN in 1959, said its report for the first quarter that a recovery is expected this year and zinc usage in Europe could rise by 6.9 per cent, while in Japan it would be up by 15.4 per cent.

Zinc demand will likely increase in India, South Korea, Taiwan, Turkey and the US.

Supply to exceed demand

The group said that global supply of refined zinc will exceed demand this year too and the metal’s surplus will be 353,000 tonnes. This will, however, be lower than the estimated 488,000 tonnes surplus last year.

ILZSG data for the first quarter showed that while mine production was 3.14 mt (2.96 mt ), refined metal production was 3.47 mt (3.34 mt) and the metal usage or demand 3.41 mt (3.09 mt).

It said demand in China was expected to increase by 1.8 per cent this year from 1.3 per cent last year, while global supply will increase 5.7 per cent to 12.92 mt.

ILZSG said it anticipates world refined zinc metal output to increase by 3.1 per cent to 14.13 mt this year, after increasing by 1.6 per cent last year.


Supply disruptions

ING Think Senior Commodities Strategist Wenyu Yao, in her recent write-up, said that constant supply disruptions are providing impetus to zinc prices.

Yao said that the latest disruptions are in China’s southwest province of Yunnan due to power shortages and industries being asked to cap the power load or stagger power usage.

This has resulted in a power shortage that could affect zinc smelting capacities to the tune of 1.2 mt and result in 20,000 tonnes of refined zinc production being affected. Any prolonged disruptions could further impact zinc supply in China, Yao said.

While mine production in Peru is recovering, controls in inner Mongolia to cut power consumption could result in zinc mining being reduced by 5,000 tonnes and 6,500 tonnes of refined zinc.

All these have led to zinc premiums in northern Europe rising over the last two weeks as a short-term tightness is perceived in the spot market.

Chinese demand

Global metals mining research firm Wood Mackenzie said the refined market will be well supplied this year, but macroeconomic and country risk research house Fitch Solutions said it has increased its zinc price assumptions for 2021 and 2022 due to growing demand in China.

UK-based commodity markets analysis group CRU said that though demand is expected to recover this year, the refined market will continue to be in surplus.

Dr Heinz-Jürgen Buchner, Director - Industrial and Automotive, IKB Deutsche Industriebank AG, said in his analysis that zinc prices are expected to top the $3,000 a tonne threshold in the second half. Prices will fluctuate around $2,800 with a band of $400 during the second half of this year.

Long-term prospects

Russian zinc producer Ural Mining and Metallurgical Company, in its outlook for the metal, said zinc surplus could shrink up to 350,000 tonnes this year, while the global economy recovers on government incentive schemes and decarbonisation efforts.

It said that it expected zinc demand to grow through 2025 and the metal’s prices would rule above $2,500 a tonne in the long-term.

Yao said zinc’s upside potential for the remaining part of the year remained if China chose to boost its funded infrastructure programme.

Rising refined zinc output (in million tonnes)






Mine output






Refined zinc output






Metal usage






Source: ILZSG

Published on June 16, 2021

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