Seeking Alpha says “there are some metals analysts who believe that zinc will be in deficit from 2016; and then there are some who believe that global zinc demand has already surpassed supply in 2013. But after years of range-bound trading and zinc prices see-sawing between $0.8/lb and $1.2/lb there seems to be growing consensus that a break to the upside is nigh; and the discussion on price outlook for zinc is distinctly shifting away from ‘if’ towards ‘when’ this break might happen. Clive Burstow, of Baring Asset Management echoes what Seeking Alpha believes is the common sentiment regarding this metal: “”Zinc is one of the commodities that has been a bit unloved. We’ve reached a tipping point where zinc is now moving into a sustainable period of deficit, though, and that makes it an interesting market.” The chart shown is taken from a Glencore XStrata presentation and shows its projections of the supply-demand balance until 2020.
Zinc’s main demand stems from galvanisation (coating steel in order to protect against corrosion) and is therefore closely linked to steel demand. Other zinc usage includes the production of certain alloys such as bronze; batteries; and various zinc compounds, e.g. zinc oxide in paints. All these applications are closely linked to general economic development and consumer spending, and the current climate of economic recovery is certainly supportive for zinc demand.
Seeking Alpha goes on to explain that “the supply side of the equation on the other hand is taking some blows: Glencore Xstrata’s Brunswick #6 and #12 mines and also the Perseverance mine in Canada closed last year. The Lisheen mine in Ireland operated by Vedanta Resources is winding down; and zinc production from MMG’s Century mine in Queensland, Australia, is scheduled to stop in 2015, while partial replacement from the nearby Dugald River lode might start later than originally scheduled. Other large zinc mines are also approaching their twilight years.
“And there are only a limited number of new zinc projects coming into production to replace this lost output which is the reason for analysts to predict the mentioned supply deficit; and for the zinc price to start heading north.”