Zinc Market Outlook
We think zinc prices look oversold, being heavily discounted for an expected jump in refined zinc supply over next 12 months. Demand conditions are also weakening creating a further headwind for market sentiment.
However, we believe a rapid rebalancing to a zinc market surplus is unlikely in the near term. In fact, we forecast the global refined market to remain in a 129,000 tonne deficit in 2019 putting further pressure on already very tight above ground supply.
The key factor will be the speed and extent of increased Chinese refined zinc production, which now dominates global refined capacity. In the past three years, China’s supply response to higher zinc prices has been muted suggesting it is losing its strong swing supply status.
Blurring the response has been increased environmental inspections by Chinese officials keen to clean up the fragmented industry. As a result, the market will be closely watching monthly production data for any change.
The global zinc concentrate market is also in a state of flux, having been boosted by low global treatment charges over the past two years.
New mine capacity is being commissioned – but the projects are lumpy and associated with processing and sovereign risks. Most of it sits outside of China, suggesting China will need to increase zinc concentrate imports as its refined capacity starts to rise.
We forecast global zinc prices to average US$2,505/t in 2019 and US$2,335/t in 2020. Prices should start to recover from the second half of 2021 in line with a peak in the global concentrate surplus.
We believe long term real prices (post 2023) should trend towards US$2,650/t in line with the past 10-year symmetrical trading patterns and industry breakeven cost analysis.
For more detailed see Zinc Market Outlook presentation below