Zinc shoots to 8-year high on expected metal deficit

The last time the benchmark zinc price was this high, Americans were in the throws of an election that saw Barack Obama take over from George W. Bush.

Worries about mine closures have sent the metal used for galvanizing steel on a wild ride; the benchmark zinc price rose 2.1% today to $2,725 a tonne, which is the highest it's been since March of 2008. The 30-day spot zinc price was at $1.20 a pound, 11.2% higher than it was a month ago. Chinese funds in particular are piling into zinc.

 

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Apart from steelmaking raw materials iron ore and coking coal, zinc is the best performing mined commodity in 2016; the benchmark price has nearly doubled (up 90%) since it fell to a 6.5-year low in January of $1,444.40 a tonne.

What's driving the surge? Mine closures. Last year two major mines closed – Australia's Century and the Lisheen mine in Ireland. The two mines had a combined output of more than 630,000 tonnes. The shuttering of top zinc producer Glencore’s (LON:GLEN) depleted Brunswick and Perseverance mines in Canada in 2012 brings total tonnes going offline since 2013 to more than a million tonnes.

At the end of October Glencore added another lead and zinc mine to the list, its Black Star open-pit mine at Mount Isa in Queensland, Australia.

A Reuters survey predicts the zinc market will be in deficit this year by 400,000 tonnes, which portends more good news for the price. Although, dark clouds could be swirling for zinc bulls in the form of zinc inventories built up in London Metal Exchange (LME) warehouses. Reuters notes that Macquarie, an Australian investment bank, estimates 1.4 million tonnes of zinc could trickle into the market, thus offsetting the expected supply deficit.

Shanghai Metals Market (SMM), a Chinese market intelligence site, is sanguine on the zinc price for the medium term, predicting that zinc smelters may have to suspend production in the first quarter of 2017 due to falling material inventories.

"This may help LME zinc breach $3,000 per tonne, $3,500 per tonne, or even higher. Nonetheless, there are still some uncertainties from macroeconomic front, such as liquidity, investment, US dollar and Chinese yuan’s trend," according to SMM.