BMO Capital Markets: Zinc Deficit Coming in 2015

The consensus amongst zinc market participants is that while prospects for the metal are good, threats to its positive outlook exist. 
That sentiment was reiterated at the 19th Zinc & its Markets Seminar in May, and more recently by BMO Capital Markets in its Q3 2015 Commodity Canvas report. In it, the firm predicts a positive six-month outlook for zinc — along with uranium, nickel and palladium — and states that it now anticipates a zinc deficit this year, rather than in 2017 as it previously predicted.
BMO’s positive zinc outlook rests in part on the fact that it has doubts about supply from Chinese mines. While many involved in the zinc space believe China may jump to increase its production in the event of a zinc price rise, BMO sees “more stringent environmental assessment procedures” reducing the chance that Chinese mines will be able to react quickly to a higher zinc price.
The firm states, “[p]ermitting timelines for new mines in China are increasing, similar to the rest of the world.”
Even so, like others that are positive on the zinc price, BMO has identified a few factors that could hurt the base metal’s prospects. They are as follows:

• Demand: BMO describes demand as one of its “key concerns for the zinc market.” The firm recently revised down its expectations for steel demand, and reduced its outlook for zinc demand as a result. It points out that economic growth is currently similar to levels seen in the 1990s, and during that time “annual zinc demand growth averaged only 2.5%.”

• Thrifting: According to BMO, there is “significant” thrifting risk for zinc at prices below US$1.40 per pound.

It will be interesting to see whether the firm’s prediction of a 2015 zinc deficit ends up being accurate. At close of day Tuesday, three-month LME ABR zinc was sitting at $2,001.02 per tonne.

Company news

Major miner Nyrstar (EBR:NYR) said Tuesday that it plans to invest around AU$52 million into four growth projects at its Tasmania-based zinc smelter. The company has signed a funding and support package with that country’s government.
Two of the projects will look at “significantly increasing” the smelter’s capacity to treat concentrates that are more complex, while the others will be related to upgrading materials handling equipment and adding a side-leach plant.
On the junior side, Thunderstruck Resources (TSXV:AWE) announced this week that it’s appointed Jim Franklin and Garfield McVeigh to its advisory board. Both are zinc industry professionals.
The company also finalized an exploration program for Nakoro, one of its two flagship VMS assets, and announced a $750,000 non-brokered private placement. It will involve the sale of up to 15,000,000 units priced at $0.05 each and has a $250,000 over-allotment option.
 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Related reading:
Key Takeaways from the 19th Zinc & its Markets Seminar