Lead and Zinc
Zinc pulled back on Wednesday to below $3,400 a tonne, but stayed within shouting distance of the best levels since August 2007 as worries about global stocks of the metal, mainly used in galvanizing steel, continue to support prices.
In a research report consultants Wood Mackenzie said the combination of scheduled mine closures, top producer Glencore's strategic cuts and the impact of environmental inspections in China has depleted global stocks of concentrate.
According to the report global zinc stockpiles fell by a third in 2017 to 1.8 million tons, equivalent to 47 days of global usage. Exchange stocks halved from 500kt to 250kt (equivalent to just 6 days of global consumption) over the same period.
By the end of the second quarter, there will be less than 40 days’ of stock available for consumers; "a critically low level" according to the authors which should propel prices to $4,000 a tonne in the third quarter of this year.
However, says Woodmac, zinc has the potential to rally even further:
"As the rapid escalation of the price thus far in 2018 has demonstrated, there is a strong possibility that investor
enthusiasm will pre-empt the tightness in the refined market and the cyclical peak in the price could be higher and sooner than
our base case assumption of a Q1 2019 average of $4,100/t."
Zinc has more than doubled since hitting multi-year lows in January 2016 when top producer Glencore curtailed production to shore up prices.
In December, Glencore said it would restart its Lady Loretta mine in the first half of this year, but added that it still expects zinc output to decrease slightly in 2018 to a shade under 1.1 million tonnes. In 2019, Glencore sees its zinc output creeping back up to 1.16 million tonnes.
Overall global zinc supply is to increase with additional capacity coming online in Australia (MMG's Dugald River project) and South Africa (Vedanta's Gamsberg mine).