Zinc prices may rule stable this quarter on Chinese recovery hopes

Zinc prices will likely rule stable during the current quarter to December despite having declined last quarter following poor Chinese consumption.

The London Metal Exchange (LME) zinc spot price declined to $2,500 a tonne from an average of about $3,100 a tonne in the previous three quarters on worries over shortages of zinc refining capacity, the Australian Office of Chief Economist (AOCE) said its resources and energy quarterly. 

Currently, zinc spot price is ruling at $2,601, while the three-month contract dropped to $2,554 on Tuesday. The metal, mainly used as a galvanizer to prevent rusting, had surged to $2,675 on May 10. 

Tightness to ease

“The zinc price declined noticeably in the September quarter as Chinese demand disappointed expectations. China’s ongoing property crisis has weakened the prospects for demand over the outlook period, with the price forecast to average $2,600 a tonne in 2025,” the AOCE said. 

However, prices are looking up currently on hopes that the Chinese economy will recover, while projections of lower production in Europe and Australia are also supporting the uptrend. The AOCE forecast the LME zinc spot price to average at about $2,700 a tonne in 2023.

Research agency BMI, a Fitch Solutions unit, has projected zinc prices to average $2,550 in 2023, which implies prices averaging $2,212/tonne over September-December.

“We expect prices to remain relatively stable over the coming months, as gradually improving mined and refined output helps to reduce market tightness,” it said.

Surplus supplies

According to provisional data from International Lead and Zinc Study Group (ILZSG), a UN body, world refined zinc metal supply exceeded demand by 370,000 tonnes in the first half of 2023 with total reported inventories increasing by 85,000 tonnes. 

World zinc mine production fell in Burkina Faso, Canada, Sweden and Australia, where mining activity was impacted by heavy rains in the first quarter. These declines were partially balanced by rises in Brazil, Kazakhstan, Peru and Portugal resulting in an overall reduction globally of 0.7 per cent, it said. 

LME zinc stockpiles surged in August, rebounding from multi-year lows. This suggests that a structural reversal of zinc market tightness is playing out, BMI said.

Rise in cancelled warrants

According to ING Think, the economic and financial analysis wing of Dutch multinational services firm ING, there was a sharp rise in cancelled warrants at LME warehouses. This means the commodity was taken out of LME warehouses. A rise in cancelled warrants signals demand. 

“The latest data shows that cancelled warrants for zinc jumped 15,875 tonnes to 48,150 tonnes (September 28). The increase was driven by warehouses in Singapore. The sudden jump in cancelled warrants might result in declining inventories over the coming days,” it said.

Similarly, inventories also dropped on the Shanghai Futures Exchange, ING Think said.

The Australian Office of the Chief Economist said zinc prices headed south last quarter as some European zinc smelters opened. The decline has been sustained by the underlying weakness in demand, as China failed to deliver the widely expected recovery in demand. 

Negative long-term view

ILZSG said global zinc production increased 2.7 per cent in the first half of 2023 on a significant rise in Chinese refined metal production. The output was also up in Australia, benefiting from the commissioning of additional capacity at the Sun Metals Zinc Refinery, and Mexico. 

BMI said there are tentative signs that European smelters could begin increasing production again in 2023.

The research agency said its long-term view of zinc prices was negative. “We forecast zinc prices to average $2,150/tonne over 2024-27,” it said. 

The AOCE forecast zinc prices to fall to average $2,500 in 2024 and $2,600 in 2025, with zinc demand growth expected to remain weak .

COMMENT NOW