Gold Silver Reports — Zinc prices are holding steady, continuing to do better than other non-ferrous metals such as copper and aluminium. Sharp tightening in supply appears to be the main reason.
Balanced market keeps prices steady: Zinc
The International Lead and Zinc Study Group’s (ILZSG’s) latest release shows that refined zinc metal consumption has been virtually flat in the January-April period, compared with a year ago, at 4.4 million tonnes.
Global metal output in January-April has declined by 3.5% from a year ago. ILZSG also said zinc mine production fell by 8.1% due to declines in Australia, India, Ireland, Peru and the US. Production cuts and mine closures are the main reasons for a tighter supply situation in zinc. Hindustan Zinc Ltd, for instance, said production in the March quarter had been affected due to lower output from its open pit mine.
This tightness in supply meant that the global zinc market reported an estimated surplus of 24,000 tonnes in the January-April period. For 2016, ILZSG had forecast an increase in consumption of 3.5%, while it had projected total zinc mine output to decline by 1.4%. It had projected a deficit of 352,000 tonnes in 2016.
The first four months indicate a situation where consumption is flat but declining output is helping balance the market. That, in turn, is helping support prices, although the market is not in a deficit situation. Companies expect this to continue. A recent presentation by Nyrstar NV, the second largest producer of zinc, says lower supply and support from demand augurs well for prices. China remains a main factor that is driving consumption, with the recent pickup in infrastructure spend a key reason.
In 2016 so far, zinc prices on the London Metal Exchange have increased by 28% since the start of the year, adding considerably to the fortunes of producers. The current quarter has seen prices increases by 6% since early-April. The current quarter too appears good for producers. The main risk is if China surprises, either on the demand or supply front, both of which could upset prices. — Neal Bhai Reports