NEWS & ANALYSIS
Zinc price outlook remains positive
Fourth-quarter zinc prices on London-based metal exchange LME are expected to trade in a similar range to third-quarter prices because the global market is likely to remain in deficit.
LME zinc prices are forecast to trade in a range of $2,650-3,100/t in the fourth quarter, according to forecasts from a number of analysts. This equates to an average LME zinc price of $2,926/t over the next quarter and is a small decrease on the average of $2,963/t for the third quarter so far.
The LME zinc cash price made significant gains in the third quarter and rose to a 2017 high of $3,194/t on 5 September, from a 2017 low of $2,434.5/t on 7 June.
The increase was the result of strong global economic growth, a zinc concentrate deficit and an increase in speculative investment across the base metals complex.
Global GDP is forecast to grow by 3.6pc in 2017, while China's GDP is expected to grow by 6.8pc.
The refined zinc market recorded a deficit of 203,000t in the first half of this year, data from the International Lead and Zinc Study Group (ILZSG) show.
The zinc price has fallen by 1.3pc in the past three weeks, to $3,150/t on 27 September. During this period base metals suffered from a bout of investor profit-taking leading to a 7pc fall in the LME copper price.
Higher zinc prices have incentivised increases in mine production, which rose by 5.4pc to 6.5mn t in the first half of the year, ILZSG data show. But China's metals agency Antaike has reported that Chinese zinc in concentrate production fell by 3.4pc during this period as mine output was constrained by environmental inspections.
Zinc output in China was also reduced as a result of an earthquake in Sichuan province in August that is expected to disrupt supply for 1-2 months. The region accounts for 6-7pc of domestic lead and zinc output.
Long-term forecasts
Analysts are forecasting the LME zinc price to trade in a range of $2,369-3,200/t in 2018, averaging $2,813/t for the year.
A prolonged period of insufficient mine investment is likely to maintain the supply deficit in the medium term and support prices.
China's infrastructure spending will continue to support consumption during the period of tight zinc concentrate supply.
But analysts are forecasting an average zinc price of $2,558/t by the fourth quarter of 2018. This is considerably lower than the $2,875/t average for the first quarter of 2018, as higher prices are incentivising mine production that will be likely to alleviate market tightness over the longer term.
There is also a risk that commodities trading firm Glencore could restart its suspended mining operations, which would account for 500,000 t/yr of zinc production coming back on stream.
Refined global zinc metal usage was up by 0.6pc on the year at 6.95mn t in January-June, while refined zinc metal production was up by 0.5pc at 6.74mn t in the same period.
The LME zinc cash price made significant gains in the third quarter and rose to a 2017 high of $3,194/t on 5 September, from a 2017 low of $2,434.5/t on 7 June.
The increase was the result of strong global economic growth, a zinc concentrate deficit and an increase in speculative investment across the base metals complex.
Global GDP is forecast to grow by 3.6pc in 2017, while China's GDP is expected to grow by 6.8pc.
The refined zinc market recorded a deficit of 203,000t in the first half of this year, data from the International Lead and Zinc Study Group (ILZSG) show.
The zinc price has fallen by 1.3pc in the past three weeks, to $3,150/t on 27 September. During this period base metals suffered from a bout of investor profit-taking leading to a 7pc fall in the LME copper price.
Higher zinc prices have incentivised increases in mine production, which rose by 5.4pc to 6.5mn t in the first half of the year, ILZSG data show. But China's metals agency Antaike has reported that Chinese zinc in concentrate production fell by 3.4pc during this period as mine output was constrained by environmental inspections.
Zinc output in China was also reduced as a result of an earthquake in Sichuan province in August that is expected to disrupt supply for 1-2 months. The region accounts for 6-7pc of domestic lead and zinc output.
Long-term forecasts
Analysts are forecasting the LME zinc price to trade in a range of $2,369-3,200/t in 2018, averaging $2,813/t for the year.
A prolonged period of insufficient mine investment is likely to maintain the supply deficit in the medium term and support prices.
China's infrastructure spending will continue to support consumption during the period of tight zinc concentrate supply.
But analysts are forecasting an average zinc price of $2,558/t by the fourth quarter of 2018. This is considerably lower than the $2,875/t average for the first quarter of 2018, as higher prices are incentivising mine production that will be likely to alleviate market tightness over the longer term.
There is also a risk that commodities trading firm Glencore could restart its suspended mining operations, which would account for 500,000 t/yr of zinc production coming back on stream.
Refined global zinc metal usage was up by 0.6pc on the year at 6.95mn t in January-June, while refined zinc metal production was up by 0.5pc at 6.74mn t in the same period.
This analysis was published in Argus Metals International.
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