Zinc’s Supply & Demand Equation Not Simple Math

May 06, 2015


The Prospects For Zinc

When looking at where zinc will go from here, the three big unknowns have to be: first, the effect China’s slowing growth will have on zinc demand, if both the country’s steel production and the demand for the steel it produces decrease drastically—especially since the greatest use for zinc globally is for galvanizing.

Second, there is China’s ability, in the face of any tightening in supply and/or rise in prices, both to increase mine and refined zinc production. On the basis of last year’s figures (and those for the first few months of this year), the country’s ability historically to increase mine and refined zinc production appears proven. (What the limits are to either or both, however, appears less obvious.)

And third, not only just how all the various differentials between the U.S. dollar and other relevant currencies (especially the Australian dollar) continue to morph, but also the effects they have on any decisions by producers to cease and/or reduce production—or not.

The big question, surely, remains: Over what period of time are we going to see all this narrative played out—however it ends? 2015? Probably not; perhaps, rather, 2016/17.

A Word Of Caution

Extreme care should be exercised when trying to draw conclusions about supply and demand from the changing levels of LME zinc stocks.

The U.S. Geological Survey had this to say in their report Zinc In December 2014, published in March: “In February, the LME approved two additional warehouses in New Orleans, LA, for metal delivery. The warehouses were owned by Whelan Metals LLC, a subsidiary of warehousing and distribution company W.F. Whelan Co. (Canton, MI). The listing coincided with the cancellation of warrants for 90,000 t of zinc in New Orleans-based LME warehouses, the majority of which were operated by Pacorini Metals AG, a subsidiary of Glencore. News reports speculated that the material may have been bound for Whelan’s new warehouses to be made available for consumers, as the difference between the futures price of zinc and the cash price has recently narrowed, making financing deals for the metal less attractive to investors.”

As always, there is more to changes in LME warehouse stocks than immediately meets the eye.


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