The zinc and lead markets are expected to present "interesting market opportunities" in the coming year, trading group Trafigura said Monday in its annual report for the 12 months to September 30.
"In zinc, we see an increasing divergence between the concentrates and refined metal markets, with an emerging surplus in concentrates and a continuing deficit in refined before that market moves into balance," the company said.
"This disconnect between the two markets will make for a unique trading dynamic going forward."
In 2018, the refined zinc market has "presented a difficult environment for trading" as supplies of both concentrates and refined metal remained tight for much of the year and refined prices were backwardated, Trafigura said.
Concentrates supply had been constrained for two years as a result of the closure of the Century mine in Australia and the Lisheen mine in Ireland, it noted, but added that as the year progressed "this tightness started to ease as new zinc mine projects came onstream, while smelters within and outside China moved closer to producing at full capacity."
By the end of the company's fiscal year "there was very little idle capacity at existing smelters and there seemed little prospect that smelter output would rise to match the increase in concentrate production," Trafigura said.
In lead, mine supply has showed no sign of recovery this year after significant decreases in recent years, and the concentrates market has remained tight, the company said.
"To add to the pressure, recent environmental inspections in China have targeted secondary lead producers directly," Trafigura said, adding that the metal falls within two major categories that face scrutiny from the central government -- solid waste and heavy metal.
"This has impacted smelters' ability to produce, while demand has remained strong, driven by replacement battery needs," it said.
Looking ahead, "we expect the markets for lead concentrates and refined lead to remain strong as new mine supply is constrained and the smelting industry consolidates," the company said.
A key development for Trafigura in the coming year in both refined zinc and lead will be a significant increase in offtake volumes from Belgium-based producer Nyrstar under new contracts that take effect in January 2019, it said.
