Zinc prices fell to a three-week low on Tuesday (October 17) as a stronger US dollar and an increase in warehouse inventories put pressure on prices.
Despite that pressure, zinc is still trading above the $3,000-per-tonne mark. On Tuesday, LME zinc closed down 3.4 percent, at $3,085, after touching $3,054, its lowest level since September.
The base metal has been surging since January, and is up more than 21 percent since the beginning of the year. It has been trading above $3,000 since August, and earlier this month touched $3,308.75, its highest price in a decade, on supply concerns.
Overall, on-warrant LME zinc inventories, which consist of metal available to investors, are up 17,850 tonnes this month for a rise of 27 percent. Keeping an eye on stockpile levels is important for zinc-focused investors, as they show how much zinc is readily available to end users.
Commerzbank analyst Daniel Briesemann told Reuters that he sees stockpiles potentially rising further in the near future. “I think higher production should be on the cards in the short term because quite a few mining producers have flagged that they are going to increase output,” he said.
He anticipates prices pulling back from recent highs, and added, “I see the zinc price falling back below $3,000 within the next month, maybe in the next few weeks.”
That said, warehouse stockpiles are still down year-to-date, and CRU expects global zinc stockpiles to fall even further in the longer term. The firm believes that by 2018 they will reach levels that have historically seen a strong price reaction.
Overall, CRU is only “mildly bullish” on zinc prices this year, but expects higher prices further out. “The reason we are not more bullish is that that we do not see high prices being sustainable until we start to see real metal market tightness in 2018 and 2019,” it said.
FocusEconomics panelists estimate that the average zinc price for Q4 2017 will be $2,944. The most bullish forecast for the quarter comes from Standard Chartered (LSE:STAN), which is calling for a price of $3,250; meanwhile, Euromonitor is the most bearish with a forecast of $2,392.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.