London 11/01/2016 - By Victor Mendez-Barreira
Zinc should outperform most commodities this year, with Macquarie expecting a price increase of 23 percent due to tighter supply than its peers - especially aluminium, which it expects to fall five percent.
The price should average $1,833 per tonne in 2016, down from $1,932 in 2015 but up 23 percent from current sub-$1,500 levels. The price for delivery in three months on the LME was last at $1,476 per tonne, only slightly above the six-and-a-half-year low of $1,433 hit last Thursday.
A lack of supply will drive zinc prices higher in the months to come, Macquarie said in a note on Monday. A shortage of raw materials will lead to smelter cuts and a further drawdown in metal stocks by an estimated 340,000 tonnes, it warned. That would drive inventories down to 5.1 weeks of consumption in 2016 from 6.6 weeks at the end of 2015.
"It was when zinc moved closer to 5 weeks of consumption back in 2005 that the eventual huge rally began to take shape," Macquarie said. "Of course this time, we do not have the wild demand story exacerbating market tightness, so we are not calling for such a strong upside as ten years ago when prices almost tripled in 18 months."
The trend in LME stocks remains firmly to the downside. There has been no delivery into listed warehouses since November 5, with LME stocks down 115,125 tonnes since that date.
Even though the Chinese slowdown will act to undermine commodity prices in general, Macquarie believes zinc will resist peer pressure.
"An individual variation in trajectory is possible when supply is severely constrained," it said.
The bank last month forecast a 433,000-tonne deficit in zinc in concentrate this year.
Meanwhile, it predicts a five-percent drop in the aluminium price this year to $1,395 per tonne, down from $1,466 currently and an average of $1,663 in 2015, driven by oversupply.
Copper should average $5,050 per tonne this year, up from current levels of $4,394 now but down from $5,503 in 2015.
(Editing by Mark Shaw)