Zinc prices passed the $3,000-per-tonne mark, supported by supply concerns, a strong demand outlook from China and a decline in warehouse inventories.
Zinc prices hit their highest level in 10 years on Wednesday (August 16), breaking the $3,000-per-tonne mark to reach $3,111. Supply concerns, a strong demand outlook from China and a decline in warehouse inventories supported the rally.
“Improving demand sentiment has been fueled by a resurgence in Chinese economic growth. However, we continue to look to supply as the primary driver underpinning increasing zinc prices,” Cormark Securities analyst Stefan Ioannou said via email.
LME warehouse stocks are down more than 40 percent year-to-date, while SHME inventories are down 54 percent since the beginning of the year. “The lack of a sudden appearance of ‘non visible’ inventory onto the LME over the last 10 months further suggests supply tightness,” Ioannou added.
As mentioned, China has also become stricter in monitoring its domestic production of the metal. Environmental inspectors have recently targeted zinc mines in Sichuan province, restricting or stopping some production, according to Chinese consultancy Shanghai Metals Market.
“There is still a possibility for a further rise in zinc prices,” analysts at the firm said.
In a recent interview, John Kaiser of Kaiser Research spoke further about how zinc prices could soar as a result of China’s environmental awakening. Click here to listen to the full interview. Similar comments from Hard Rock Analyst editor Eric Coffin can be found here.
As a result of zinc’s strong demand outlook and shrinking supply, the International Lead and Zinc Study Group is forecasting a zinc deficit of 226,000 tonnes in 2017. Analysts at Standard Chartered (LSE:STAN) expect a global deficit of 135,000 tonnes of zinc concentrate this year, and a 222,000-tonne deficit for refined metal.
Zinc stocks on the rise
Following zinc’s price jump, several zinc producers saw share price increases. On Wednesday, Swiss mining giant Glencore (LSE:GLEN) gained more than 4 percent to close in London at GBX 341.54.
The diversified miner suspended 500,000 tonnes of zinc capacity in October 2015 due to low prices. Despite the 60-percent price surge last year, CEO Ivan Glasenberg said recently that the company will be cautious about when it brings back that production.
Canada’s Teck Resources (TSX:TECK.B,NYSE:TECK) also saw its share price increase by almost 4 percent to trade around the $23.21 range, while London-based Vedanta Resources’ (LSE:VED) share price increased by almost 7 percent to close in London at GBX 750.50.
Many analysts continue to be bullish on zinc-focused companies for the rest of the year. Most recently, Raymond James analysts shared their top zinc stocks to watch this fall — click here to read more.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.