London 23/05/2016 - Macquarie has lifted its 2016 price forecast of zinc - its favoured LME long - citing its bullish fundamental story.
The bank raised its price forecast for this year by 2.8 percent to $1,882 per tonne from $1,830 previously, pointing out that the metal's recent strength is a little ahead of its forecast for a strong recovery in the metal.
Zinc has rallied 20 percent in the year to date, outpacing the rest of the complex. LME three-month zinc opened at $1,848 per tonne on Monday, down $18 on Friday's close.
Mine cuts took place in the first quarter as planned, with Australia particularly affected by the loss of Century and the Glencore cuts, the bank said, adding that output from Chinese mines by the end of February was down 2.8 percent on the first two months of last year.
Macquarie continues to expect an eight-percent fall in mine output this year and a deficit of just below 770,000 tonnes of zinc concentrates.
Global zinc treatment charges (TCs), the discount on refined prices miners grant to smelters to cover the cost of turning concentrate into metal, are falling alongside Chinese TCs, reflecting the tight availability of concentrates.
Zinc TCs were last quoted at $125-135 per tonne on a cost, insurance and freight (CIF) basis for delivery to Chinese ports, down from $160-175 at the start of this year, according to FastMarkets. This is putting pressure on smelter output of refined zinc, the bank added.
Meanwhile, Macquarie also upgraded its 2016 demand growth projection for zinc to 2.5 percent from two percent, citing a firmer property market, strong auto sales and continued strength in infrastructure investment. Still, the Brazilian and Russian galvanised steel industries are likely to be weak.
Into the second half, the bank continues to believe prices only have upside from current levels.
"We reiterate zinc as our favoured LME long, with 50 percent gains seen by 2019," it said.
(Editing by Mark Shaw)