Zinc prices had rallied by more than 50 percent since the low it made since January 2016. Prices rose on expectation of the metal showing higher deficit this year. Supply constraints have helped zinc prices to rise considerably this year.
Global zinc market is in deficit of 174000 tonnes in the Jan-July period of 2016 as compared to a surplus 194000 tonnes during the same period last year. During the first seven month of 2016, global zinc mine production fell 6.1 percent, refined production dropped by 3.9 percent while global zinc usage rose by just 0.7 percent. However, this month ILZSG data showed a small supply deficit of 5,400 tonnes in July, much lower than the deficit of 56,000 tonnes in June 2016. Lower deficit suggests the zinc prices is likely to correct in the short term period.
|(All figures in tonnes)||July||June||2016||2015|
|Global Zinc Production||1075.6||1131.4||7427||7902|
|Global Refined Production||1112.6||1136.7||7771||8084|
|Global Zinc Demand||1118||1189.8||7945||7890|
Source: ILZSG, CT Research Desk
Fundamentally zinc prices are expected to remain strong in the next year due to large zinc mines closures happened this year and no new zinc mines are expected to come online to replace them. Zinc prices took an upbeat higher move after the announcement from Glencore to shutdown 500,000 tonnes of zinc production on account of demand worries and low pricing. Demand from China has also remained price supportive for the metal as the country imported almost 90 percent more than the last year to 296,000 tonnes and tightness in zinc concentrate market also helped the rally. China government had asked to shutdown zinc mines in the Hunan province in August. Lower TC/RC charges suggested tightness in zinc production which kept the prices higher in the physical markets.
Positive Outlook on Zinc:
We at CommTathya believe zinc fundamentals are likely to keep the prices strong going forward. But profit taking cannot be ruled out from these levels. We expect zinc prices to correct to 140-135 levels from in the span of one month.
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