Zinc Market Faces Pressures Amid Global Economic Slowdown and Surging Supplies
Zinc prices, currently at a one-year high on the London Metal Exchange (LME), are under threat from slow global economic growth and a surplus of supplies, according to industry analysts. Despite recent highs, the outlook for zinc demand remains subdued, particularly due to ongoing weakness in China’s property market and a general deceleration in global economic activity.
The Australian Office of the Chief Economist (AOCE) in its latest "Resources and energy quarterly" report highlighted concerns over the global demand for zinc. Meanwhile, research agency BMI, a unit of Fitch Solutions, anticipates that refined zinc production will continue to grow in 2024, following strong output increases in 2023. This is in contrast to the production deficits seen in 2021 and 2022. For 2024, BMI predicts a surplus of 192,000 tonnes, slightly down from 196,000 tonnes in 2023.
Trading Economics has noted that a strong U.S. dollar is currently diminishing the impact of any supply threats, as the dollar's strength makes zinc, priced in dollars, more expensive for holders of other currencies.
Price Forecasts and Market Dynamics
- The AOCE expects zinc prices to gradually rise from around $2,400 per tonne to approximately $2,700 by the end of 2029.
- Conversely, BMI has set its zinc price forecast for 2024 at $2,500 per tonne, a decrease from an annual average of $2,651 per tonne in 2023, citing excess market supply as a primary factor driving prices down.
Despite earlier projections of robust demand from China in 2024, the uncertain growth prospects for the Chinese economy and subdued outlook across other major markets are expected to limit any significant price increases. BMI further projects that zinc prices will average around $2,560 per tonne from 2024 to 2028, remaining below levels seen in 2022.
Current Market Prices and Future Outlook
As of early Friday, the zinc 3-month contract on the LME was quoted at $2,804.94 per tonne, with spot prices nearly matching this at $2,802. The metal has seen a gain of approximately 10% in 2024 and over 13% this month alone.
However, the soft demand outlook could pressurize mine margins and potentially lead to more mine closures. The impact of higher U.S. inflation data has also shifted investor expectations regarding Federal Reserve interest rate cuts, bolstering the U.S. dollar and dampening zinc purchasing power.
Refined zinc production is set to increase globally, driven by key production hikes in China and anticipated resumptions and expansions at sites like Glencore’s Nordenham smelter in Germany and the Odda mine in Norway. Despite this, BMI warns that the pace of production growth is expected to slow significantly post-2024 due to a global surplus, which could dampen new investments in zinc smelter capacity.
Global zinc consumption is predicted to rise by 2.6% in 2024, but this increase will likely be insufficient to offset the sluggish growth across the broader world economy.
