Is The Zinc Bull Market Over?

Zinc prices have no doubt sky-rocketed this year, rising dramatically from $0.69 per pound to currently sit at $1.03 per pound. Overall, the metal has gained 51.50 percent year-to-date, in part driven by zinc mine closures over the last year. 
According to FocusEconomics‘ July 2016 Consensus Forecast Commodities report, reactions to Brexit—which saw the US dollar soar and global growth prospects questioned—also contributed to a temporary drop in zinc prices.
Looking to the future, analysts polled by FocusEconomics also expect zinc prices to decrease due to considerable stocks, although there was a split as to what they expected the average price to be come year-end.
On the London Metal Exchange, zinc has recently traded at $2,260 per tonne. The maximum average price projected by analysts polled by FocusEconomics for the fourth quarter of 2016 is $2,268, which clearly isn’t far off from where it is now.
With that being said, some analysts are questioning whether or not the bull market is over when it’s barely just started.

Zinc rally over?

Forbes reported that analysts over at Investec expect zinc supply and demand to rise by a fifth this year. Stocks at the London Metal Exchange warehouses have dropped 10 percent since the beginning of the year as well.
However, the publication wrote that an unnamed broker stated, “any strength in the zinc market is usually quickly eroded by the restart of small zinc mines in China.”
Forbes goes on to say that analysts believe there isn’t much further for the zinc prices to go. Experts at the Bank of America see prices averaging $1,987 this year, significantly lower than what analysts polled over at FocusEconomics project.
Investec’s analysts, however, are forecasting even lower prices by year-end: they see zinc prices averaging $1,896 per tonne, and only rising slightly to $2,094 by 2017.

Dependent on China’s supply

One of China’s biggest zinc suppliers, MMG Limited (HKG:1208) (based in Australia and owned by China Minmetals) recently announced that its Las Bambas mine in Peru had started operating commercially, which will shift copper ahead of zinc for the time being.
But, the company is also looking to Peru, which has the world’s third-largest reserves, to develop zinc projects.
MMG CEO Andrew Michelmore said in conference call, “We’re looking at places like Peru where there’s a lot of zinc.”
He also said that the company’s Las Bambas copper mine will also be a place to explore opportunities, so it appears as though the dip into copper won’t necessarily impact their zinc production negatively.
Globally, zinc production comes heavily from China, However Chinese mine production dropped 10 per cent partly due to environmental checks and weather-related disruptions, according to the Financial Times.
The next largest producers of the metal are Australia and Peru, although output from those countries is significantly lower.
“There is so little zinc around,” Michelmore said in Bloomberg’s article. “Those people who are in zinc are also bullish about the zinc market so they don’t want to sell. That’s why we keep coming back to the focus we’ve got on finding zinc.”
David Donora, head of commodities at Columbia Threadneedle, told the Times that the base metals market, for resources like nickel and zinc, won’t be a raging bull market. But upwards pressure will continue due to broad-based emerging market demand.
“These markets are going to be fundamentally underpinned for the rest of the year and can do better.”

Time will tell

While there are varying opinions about where the zinc market is heading and what its price will be, only time can determine where the price will end up.
With a lot of dependence on Chinese supply for the base metal, and MMG amped for production in Peru, Michelmore told Bloomberg the company is positive about the future of the zinc industry.
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