Zinc bouncing back from pandemic pain

Zinc is recapturing its shine, back above $US2200/tonne for the first time since January 2020, trading at just under $US2400/tonne. Minelife founding director and senior resource analyst Gavin Wendt believes one of the primary factors driving the metal higher is that traders, speculators and funds are buying back into zinc following a March sell-off. "Speculative money is moving into commodities like zinc," he said. "The stimulus measures announced by governments and strong Chinese demand for most commodities has provided a foundation for most commodities to recover from their COVID-19 lows. "We've seen copper, iron ore and oil all rally strongly - so it's not unreasonable that zinc has also caught speculative interest. "The flow of investor funds into commodities like lead and zinc is almost a self-fulfilling prophecy, as additional funds could result in further upside to metals prices." But Mr Wendt cautions that the current demand and supply fundamentals for zinc are not too encouraging. "While post-COVID economic stimulus by China has been driving demand for industrial metals, including lead and zinc, buying from the rest of the world has been weak," he said. "According to the International Lead Zinc Study Group, the lead market currently shows a surplus of 19,000 tonnes for refined metal, with zinc showing a larger surplus of 239,000 tonnes due to a surge in Chinese production. "What's most important is that we've seen investment funds 'go long' in the zinc market during July in terms of their positions, which reflects growing speculative interest." In its half-yearly report last week key zinc producer Glencore noted that 2020 had been expected to be a year of large increases in metal supply in both China and the rest of world before COVID-19 struck. The market had so far witnessed material COVID-19 disruptions in the supply of both zinc concentrates and metal, it said. "The largest uncertainty remains the final magnitude of the reduction in zinc demand and 2020’s resulting metal balance," Glencore stated. "LME/SHFE stocks have increased by about 140k to about 220k at end of June 2020, yet remain relatively low at less than a week of stocks relative to global consumption. "Looking ahead, we expect mine supply to recover as COVID prevention measures begin to ease. With metal production increasing and the final impact of the COVID crisis on demand uncertain, the level of metal surplus remains to be seen, however, in any case, such is needed to rebalance a metal market which has been in deficit since 2016. "In the case of lead, the COVID crisis supply impact has been less drastic than zinc, given the smaller primary market, losing about 0.2Mt ofmined supply. The disruption has driven spot TCs down from $180/dmt in January to $140/dmt in June."

Zinc bouncing back from pandemic pain

Industry Queensland

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