Tight Supply and Rising Demand Push Zinc Prices Higher

Tight supply, improving demand in China, and falling inventories are expected to push zinc prices up by around 8% in the short term, analysts say. The zinc market has faced mine setbacks this year, tightening zinc ore and concentrate supplies, noted Daniel Hynes, senior commodity strategist at ANZ Research.

Sibanye-Stillwater recently suspended operations at its Century zinc mine in Australia until mid-November due to bushfire damage. The group expects zinc production in the last quarter of 2024 to fall by nearly 9,680 tonnes from an earlier forecast of 87,000-100,000 tonnes. Canadian miner Ivanhoe Mines also sharply downgraded expected zinc production from its Kipushi mine in the DRC to 50,000-70,000 tonnes, down from 100,000-140,000 tonnes due to operational challenges.

Despite earlier expectations of a supply surplus, the International Lead and Zinc Study Group (ILZSG) now forecasts a refined zinc market deficit of 164,000 tonnes for 2024 as demand outpaces supply. Global refined zinc production is expected to drop by 1.8% to 13.67 million tonnes this year.

Zinc prices have gained about 33% since the beginning of the year on the Multi Commodity Exchange (MCX) of India. On Thursday, the November zinc contract on the MCX hit a 21-month high of INR 299.55 per kg, while the three-month zinc contract on the London Metal Exchange (LME) reached a 20-month high of $3,284 per tonne.

Lower treatment and refining charges, along with recovery in steel prices, are supporting zinc prices in the short run, according to Navneet Damani, head of research at Motilal Oswal. Zinc is widely used in steel galvanization, making steel prices a key factor.

Chinese government measures to revive the property market are also driving zinc prices. Inventories at LME-registered warehouses dropped by 24,700 tonnes in the past two months, while Shanghai Futures Exchange stocks fell to 80,077 tonnes by October 18, from 87,468 tonnes in August. Trade data shows increased interest in zinc contracts, supporting further price increases.

China, the largest producer and consumer of non-ferrous metals, plays a crucial role in zinc demand. Recent rate cuts by the People's Bank of China are expected to boost economic growth and demand. In September, China's industrial production grew by 5.4%, exceeding expectations, while retail sales rose by 3.2%. GDP expanded by 4.6% in the third quarter of 2024.