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Informist, Friday, Oct. 25, 2024

 

By Ashutosh Pati

 

MUMBAI – Supply tightness, signs of improving demand in China and falling inventories across exchanges are likely to push up zinc prices by around 8% in the short term, analysts said. The zinc market has been rattled by a series of mine setbacks this year, dramatically tightening supplies of zinc ore and concentrate, Daniel Hynes, senior commodity strategist at ANZ Research said in a note.

 

Sibanye-Stillwater, a multinational mining and metals processing group, recently suspended operations at its Century zinc mine in Australia till mid-November after a regional bushfire damaged equipment. The group expects zinc production in the mine in the last quarter of 2024 to fall by almost 9,680 tonnes from their previous forecast of 87,000-100,000 tonnes.

 

"This (mining suspension) mirrors a trend across other metals markets, with tightness in raw material markets emerging as supply disruptions mount," Hynes said.

 

Moreover, Ivanhoe Mines, a Canadian mining company, sharply downgraded its expected production from its Kipushi mine in the Democratic Republic of Congo to 50,000-70,000 tonnes of concentrated zinc from 100,000-140,000 tonnes this year due to operational problems. "Price-led closures and disruptions that resulted in a 1.5% drop in 2023 mined zinc supply appear to be continuing into 2024," analysts at ANZ Research said in a report.

 

Global refined zinc production was at 9.11 million tonnes in the first eight months of 2024 compared with consumption of 8.98 million tonnes, resulting in a supply surplus of 127,000 tonnes. However, the International Lead and Zinc Study Group pegs the global refined zinc market to be at a deficit of 164,000 tonnes in 2024, as demand for the metal will exceed supply. The group expects global refined zinc production to fall 1.8% to 13.67 million tonnes in 2024.

 

"This year the market was expecting that zinc will be in a surplus but in the last two months the numbers are showing a deficit scenario," said Navneet Damani, head of research, commodities and currencies at Motilal Oswal. "This is indicating some positivity to (zinc) prices," he said.

 

Zinc prices have gained around 33% since the start of the year on the Multi Commodity Exchange of India. On Thursday, the most traded November zinc contract on the MCX hit a 21-month high of INR 299.55 per kg and the three-month zinc contract on the London Metal Exchange soared to a 20-month high of $3,284 per tonne.

 

There is an emerging tightness in the raw material markets, with processing fees falling and prices for semi-processed metals rising, ANZ Research said. Smelter charges tend to rise during periods of ample availability and fall during periods of shortfall.

 

"Recovery in steel prices and lower treatment charges and refining charges are positive factors for zinc (prices) in the short run," Damani said. Zinc prices are influenced by steel prices as the metal is used in the galvanisation of steel.

 

Further, the steps taken by the Chinese government to revive their property market is a major factor supporting zinc prices, said Ajay Kedia, director at Kedia Capital. The tight supply situation and speculative positioning suggest further potential for price increases in zinc.

 

Trade data indicate that market players expect zinc prices to go up. On the London Metal Exchange, the open interest for the December zinc contract has risen to 36,466 on Wednesday from 27,013 at the start of this month. Further, inventories at warehouses registered with the LME have fallen by 24,700 tonnes in the last two months. Zinc stocks at Shanghai Futures Exchange monitored warehouses fell to 80,077 tonnes as of Oct. 18 from 87,468 tonnes in August.

 

China is the largest producer and consumer of non-ferrous metals and its property sector accounts for a major chunk of global demand for metals. China announced a slew of measures over the last month to revive the economy and its ailing property sector. The People's Bank of China cut its benchmark lending rates on Monday and slashed the one-year loan prime rate by 25 basis points to 3.10% from 3.35%. It also reduced the five-year loan prime rate by 25 bps to 3.60% from 3.85%, which is likely to influence the pricing of home mortgages.

 

Demand in China is gradually reviving and the recent economic figures such as industrial production were better than expected, Manoj Jain, director of Prithvi Finmart, said. The recent rate cuts in China indicate that demand will improve in the coming months, Jain said.

 

Industrial production in China rose 5.4% on year in September, beating expectations of a 4.5% rise, and retail sales of consumer goods rose 3.2% on year, against expectations of 2.5% growth. The country's GDP expanded 4.6% on year in the third quarter of 2024, slightly above expectations of a 4.5% growth. 

 

At 1532 IST, the most-active November zinc contract on the MCX was down 2.5% at INR 284.8 per kg. The three-month zinc contract on the LME was down 3.3% at $3,069.5 per tonne. "China’s role is going to be very crucial in global metals prices,” Damani said.

 

Jain expects the MCX November zinc contract to be in a range of INR 277-315 per kg in the short term. On the LME, he said prices would be around $3,000-$3,250 per tonne. Damani expects zinc prices on the MCX to be between INR 300-305 per kg by next month and $3,050-$3,350 per tonne on the LME. He said $3,050 per tonne on the LME would be the base where one should start to buy.  End

 

US$1 = INR 84.07

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Saji George Titus

 

 

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