Singapore 30/03/2016 - Global zinc concentrate supply could fall to critically low levels later this year, setting the stage for higher metal prices towards the end of the decade, Patricia Mohr, economics and commodity market specialist at Scotiabank said in a report on Tuesday.
“Concentrate supplies could fall to critically low levels later this year, triggering smelter output cuts in China and further tightening already limited global refined metal supplies. Smelter treatment charges have already turned in favour of miners this year,” she said.
Global mined zinc production will drop by three percent this year, amid Glencore’s 500,000-tonne production cuts in Australia, Peru and Kazakhstan, and recent closures – like Century in Australia and Lisheen in Ireland - due to mine depletion, Mohr said.
These cuts will more than offset capacity expansion at Antamina in Peru, the start-up of the Guo Jian Gou mine in China and the phase-in of Nevsun’s Bisha project in Eritrea, she added.
While Glencore’s cuts are expected to end in 2017, the outlook for mine expansion is quite limited from 2018-2020, with only MMG’s Dugald River coming on stream in 2018.
In contrast, global zinc demand should climb by about 3.6 percent in 2016 on strong world automotive sales and production, strength in infrastructure spending in China and India, and a recovery in European construction activity, she noted.
Both zinc concentrates and refined metal are in deficits, though it is believed that there is an overhang of zinc metal stocks held off exchanges in finance deals, she added.
“But once these stocks are worked down, likely by late-2016, zinc prices will soar,” she said, adding that London Metal Exchange (LME) zinc prices were very over-sold in early-2016.
The bank sees the zinc price at $1.25 per lb ($2,756 per tonne) in 2017, $1.55 per lb in 2018 and $1.70 per lb in 2019. The LME three-month zinc price was at $1,785.50 per tonne on Wednesday, up $4.50 from Tuesday’s close.
On commodities on the whole, hedge and investment funds appear to be looking for reasons to bid commodity prices after the rout of recent years, Mohr said in her report.
“Early weeks of this year [sentiment] really was excessively bearish…It was quite interesting to see the recovery of sentiment mostly coming out from investment funds and hedge funds and short-covering in recent weeks,” she said in an interview with Canada’s Business News Network TV on Tuesday.
For the rest of the year, Mohr said, other than zinc, she does not see big gains for other commodities, but would not be surprised to see oil recover to $50 per barrel.
The Brent crude spot price was last at $39.52 per barrel and the Texas light sweet crude spot price at $38.88 per barrel recently on Wednesday.
(Editing by Martin Hayes)