• Maccom Group

Zinc Supply to Rebound?

Updated: Nov 20, 2019

The sharp slide in the zinc cash-to-three month price spread flags a market quickly moving from backwardation to contango and positioning for much more relaxed supply conditions. Visible zinc stockpiles are closing in on historical low levels suggesting investors are taking a big punt that the declining inventory trend has come to an end.

The key hook is the strong rally in zinc treatment charges over the past 12 months flagging a much more profitable environment for refined zinc production. The biggest influence of this outcome will come from China, which now produces 44% of global refined zinc up from 22% in 2000.

The rub is that China’s zinc production has been relatively inelastic this year rising a lower than expected 2.5% for the first eight months of 2019. All eyes will be on China’s September production numbers. If levels don’t show a marked improvement on August the shape of zinc futures curve will need to move higher and sharply back into backwardation to reflect still very tight current supply conditions.

30 views0 comments