Surging zinc price remains vulnerable to a correction

Subject

Zinc market

Significance

The zinc price rose by more than 50% last year -- the best performance of all base metals traded on the London Metal Exchange (LME). After approaching a ten-year high of 2,900 dollars per tonne in November, the price remains sharply higher than its low of 1,500 a year ago. Mine closures in Australia and Ireland removed 1.1 million tonnes of zinc from the market, limiting the increase in output last year to an estimated 0.5%. In contrast, demand rose strongly, led by Chinese infrastructure spending, which accounts for around one-quarter of zinc demand. The 2016 deficit was estimated at 400,000-600,000 tonnes, the fifth year of shortfalls.

Impacts

• Northern Chinese smelters are increasingly turning to North Korea for zinc concentrate, making the country China's third-largest supplier.
• Namibia's Skorpion mine may close two years earlier than forecast, removing an estimated 140,000 tonnes of refined metal from the market.
• South Africa's Gamsberg mine, one of the world's largest undeveloped zinc deposits, is due to begin production in 2018.
• Rising prices are attracting more buyers for the mines that Belgium-based producer Nyrstar has for sale under its restructuring programme.