Daily Management Review

Why investors see zinc as a new precious metal


07/29/2016


From the beginning of the year, price for zinc increased by more than 40%, becoming the fastest growing in the non-ferrous metal segment. The investors' interest is fueled by concerns about the possible difficulties with supplies.



Zinc occurred the fastest growing in price among non-ferrous metals in the first half of 2016. In the first six months, its price increased by 38%, to $ 2116 per ton. In June alone, quotes for the metal jumped 11%, to $ 1906 per ton.

The second half of the year also started with a rise. From early July, zinc added to the price 5%, and now is traded on the London Metal Exchange at $ 2223 per ton.

Such a jump in price was triggered by closure of a number of zinc mines in 2015 due to falling prices. In 2015, Australia had stopped production at Century, one of the largest zinc deposits. In addition, Ireland closed Lisheen mine, one of the largest zinc production in the world. Total volume of zinc production at Lisheen and Century was 675 thousand tons, which is about 5% of the global total.

Other major world zinc producers also reported a decline in production volumes. So, Glencore in October 2015 announced its plans to reduce the metal production by 500 thousand tons, which is about 4% of the world’s zinc supply.

Global zinc production volume amounted to 13.905 million tons in 2015. At the same time, in the last four years volume of world’s zinc production has increased steadily, by an average of 2-3% annually. The main growth driver was an increase in the world’s steel industry.

Zinc is mainly used for iron and steel galvanization for corrosion protection. This purpose takes up to 40% of the world’s production. It is also used in production of alloys, automobile tires and in medicine.

Quotes of the metal were fueled by fears of investors about possible problems with supplies in the medium term.

Haywood Securities investment company noted in its report that there are no new major zinc production projects, which could replace the closed capacities. Therefore, zinc prices may continue to rise in the medium term. Canadian metals company Teck Resources, one of the world's largest zinc producers, also said that situation with supplies on the world zinc market has "fundamentally changed". That is why the company expects that growth of demand for zinc will outstrip proposal.

Mark Cruise, CEO of Canadian zinc-focused, base metals mining company Trevali Mining advised investors to keep track of metal stocks in warehouses of the London Metal Exchange. In a recent interview, he warned that, given the closure of large zinc deposits, there is a high risk of disruptions in supplies.

In addition, global demand for zinc will continue to grow in 2016. According to forecasts of International Lead and Zinc Study Group, it will increase by 3.3% YoY to reach 14.37 million tons. The production also will increase by 1.8%, to 13.8 million tons.

Thus, after a surplus in 2015, zinc market once again is faced with a deficit.

China is the main global consumer and producer of zinc. Imports of the metal into the country rose to 280.8 thousand in the first half of 2016. This is twice as much as in the same period last year. At that, zinc production in China, just like in the whole world, fell by 1%, to 450 thousand tons. 

source: bloomberg.com, reuters.com, investingnews.com






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