Zinc was the second-best performing commodity in 2016, with a staggering 65.7% return. The greyish metal primarily used in galvanizing steel is off to a hot start in 2017, up another 12.5% to $1.30/lb. “For us zinc is still the most exciting story out there “ Don Lindsay, President and CEO, Teck (January 26, 2017) The reason for the zinc price rise is one of the basic principles of econom…
The greyish metal primarily used in galvanizing steel is off to a hot start in 2017, up another 12.5% to $1.30/lb.
“For us zinc is still the most exciting story out there “ Don Lindsay, President and CEO, Teck (January 26, 2017)
The reason for the zinc price rise is one of the basic principles of economics – supply and demand.
Zinc inventories (supply) have been falling like a rock. Inventories last February on the LME were ~500,000 tonnes and are now down to ~380,000 tonnes.
Two of the largest zinc mines in the world have closed in the last few years (Century and Lisheen) due to ore depletion, removing ~4 % of world supply.
The world’s largest mining company, Glencore, significantly helped the zinc market as well cutting production by 500,000 tonnes in late 2015. The cuts were made because of the low price of zinc at the time. Glencore has yet to restart production at these mines and this will be a major factor for investors in zinc to keep an eye on.
Zinc demand has steadily increased throughout the last several years and and is expected to increase by 2.1% to 13.85 million tonnes in 2017.
The zinc price is now at a 5 year high of $1.30 per pound as inventories are also near a 5 year low at ~380,000 tonnes (LME). Shanghai Futures Exchange stocks have also declined substantially in the last 3 years.
How high can zinc go in 2017?
As inventories continue to decrease along with no new mine supply expected, a pinch point appears to be coming for the zinc price.
“The next two years, 2016 and 2017, represent the ‘pinch point’ of concentrate supply, with mine-closure related cuts expected to outweigh new output from projects.” Wood Mackenzie Analyst, Jonathan Leng.
Zinc price forecasts
• Scotiabank is forecasting zinc prices to average $1.35/lb in 2017 and $1.55/lb in 2018.
• Wood Mackenzie, a leading research firm has a peak price target of $4000 US/tonne ($1.80 per lb) in 2018.
• Bank of Montreal has forecasted an average price of $1.50 per lb from 2017-2019.
If these forecasts are anywhere near correct, the zinc price still has tremendous upside from current levels.
The best way for investors to play a zinc price move would be to invest in zinc equities.
“I definitely think it is the right time to do so [invest in the zinc market]. About the only way to do so is through zinc equities, whether you’re looking at the major producers or some of the junior explorers there are not a lot of options out there for zinc.” Brien Lundin, editor of the Gold Newsletter
Investors have three different ways to play an investment in zinc stocks – producers, developers, and explorers.