April 14, 2016 | For Dundee Securities, Trevali is still a top pick, as the firm expects the company to have two operating zinc mines on line by the time positive zinc fundamentals take hold. … Read MoreGet Zinc Stock Investor Kits
The broad consensus amongst zinc market participants is that the metal’s prospects are good. That positivity is largely based on the fact that big zinc mines are set to close — or have already done so — and there are not enough new mines to replace their output.
For instance, the Brunswick 12 mine, located in New Brunswick, Canada, closed in 2013, while MMG’s (HKEX:MMG) Australia-based Century mine is set to shut down this year.
At the same time, demand for zinc is increasing. In 2014, global zinc consumption came to 14 million tonnes, and in recent years demand for the metal has grown at a rate of about 4 percent a year. Global energy, metals and mining research consultancy group Wood Mackenzie believes that growth will continue through to 2020 – if the firm proves correct, zinc consumption will see annual incremental increases of about 630,000 tonnes a year.
Zinc demand is on the rise largely because the metal is increasingly being used in new applications. Traditionally it has been used to galvanize steel and in the production of alloys, including brass, but more recently it’s come to the fore in the health, battery and agriculture sectors. Mining magnate Robert Friedland has highlighted that last use, stating that the governments of countries like China, India and Pakistan are “supporting zinc additions to fertilizer when it’s put in crop rotation.”
All that being said, threats do exist to zinc’s positive outlook. Analysts like Stefan Ioannou of Haywood Securities have pointed to the possibility of China ramping up its zinc production when the zinc price starts to move higher. “One thing that people always point to is China,” he said, adding, “China … is the world’s largest zinc producer, and it’s always been a bit of a black box.”
Zinc inventories are another factor that can impact supply. While they’ve been on the decline for the last couple of years and overall continue to fall, some have pointed to periodic spikes as evidence that zinc isn’t in as short supply as it might seem.
Luckily for investors, most analysts aren’t overly concerned about those factors. Indeed, the real question for most is when the above circumstances will converge to push the zinc price higher. While no one can predict exactly when that will happen, some believe “crunch time” will come in 2015; others believe there’s longer to wait and don’t see zinc really taking off until 2017 or 2018.
If and when the zinc price does rise, it will be important for investors to keep in mind that many believe the metal only has two or three years good years out of every 10. That means remaining aware that a higher price can’t last forever and being savvy about where and when to invest.
For now, zinc is a compelling opportunity in a market where prices for many commodities are low. Investors would do well to consider thinking zinc in the near term.