The zinc market was in deficit in 2016, even though demand was modest, while fundamentals remain positive and global zinc demand is expected to grow 2.5% in 2017, CRU analyst Helen O'Cleary said Monday.
Mine closures and cutbacks led the market into deficit last year, however "producers may require some further restraint in order for the deficit to be repeated in 2017," O'Cleary told Metal Events Ltd.'s 9th International Zinc Conference in London.
The consultancy believes that new mines might be developed in China within 2016-2021, but that will depend significantly on environmental standards imposed by the Chinese government, while mining growth in the West will be slower in the medium term, she said.
The recent labor strike at Noranda Income Fund's CEZinc smelter in Quebec will hasten metal market tightness, according to CRU.
The 265,000 mt/year plant is the largest zinc smelting facility in northeastern America, where many zinc consumers are based.
Last week, market participants told Platts that it a zinc deficit in the US was not impossible, adding that as stocks were consumed, European zinc might end up in the US.
While global zinc demand is expected to grow by 2.5% this year, European zinc demand will remain flat in 2017, O'Cleary said.
Market participants told Platts last week that even though spreads had improved, demand remained flat in Europe, with physical premiums moving higher, but slowly.
Global demand faces a couple of challenges, mainly from the automotive industry due to the substitution of zinc metal with aluminum in body sheets in the shift to lighter vehicles. "The substitution will be permanent," O'Cleary said.
"A wholesale switch to Galvalume (45% Zn, 55% Al) or Galfan (a zinc- aluminum alloy coating) may lead to a 40% fall in zinc demand," she added.
Meanwhile, zinc prices on the London Metal Exchange rose sharply in 2016 and, if they move above $3,000/mt, this might put some pressure on galvanizers who could find it hard to pass on surcharges, O'Cleary suggested.
The LME zinc cash settlement price was $2,860.50/mt Monday.
