The global supply of zinc concentrates is shrinking fast, but it might take some time for the resulting tightness in zinc refined metal and, in turn higher premiums, to take hold in the market, zinc sources said.
"The game changer was the production cutbacks by Glencore," a market analyst told Platts on the sidelines of the International Zinc Conference last Sunday in Scottsdale, Arizona. He said the zinc concentrates market will tighten by mid-year.
"Zinc stocks will begin to draw down, but there is still a lot of metal around the world," the analyst said. He predicted zinc-metal supply will not begin to tighten until 2017, with supply gradually constricting throughout next year.
Glencore said earlier this month it would produce about 1.095 million mt of zinc in 2016, a decrease of 24.2% year on year. The company said last October it would cut altogether about 500,000 mt, or roughly a third of its annual mined output, which cut 100,000 mt from its 2015 production.
Speaking at the IZA conference Monday, Rodrigo Daud, an official with Votorantim Metals, also noted the time lag between the growing shortfall in zinc concentrates and a follow-on supply ripple on the refined side.
"There is a concentrates reduction, and [zinc treatment/refining charges] are suffering, but it's not reflected in premiums yet," he said. "We still have a lot of metal."
However, he added: "This is not going to last much longer, we will start to see a [metal supply] reaction matching concentrates. It will be a good support for zinc prices in the future."
Daud estimated mine depletions and production cuts would leave a 680,000 mt gap in zinc concentrates supply this year.
Daud said he doubted there would be additional zinc-production cuts announced in the near term, noting that, while zinc prices have softened, producers operating in countries with weak currencies have been able to offset losses on the price with lower operating costs.
Don Smale, with the International Lead and Zinc Study Group, told conference attendees that ILZSG estimates there is about 400,000 mt in mine pipeline projects committed over the next two years.
CHINA STILL 'BIG QUESTION' FOR DEMAND
China remains the "big question" on the demand side of the equation, Daud said, noting that, while steel consumption in that country has decreased markedly, it still has the greatest market potential for zinc consumption. Steel consumption has grown in India and that Africa represents "a huge potential" for metals consumption, particularly steel, he added.
ILZSG's Smale said his group is forecasting global zinc demand growth at 3.3% in 2016, with most of the increase coming from China.
Steel galvanizing, whereby steel is coated with an anti-corrosive layer of zinc, accounts for roughly 55% of total zinc consumption.
Aside from Zinc's reviving supply/demand fundamentals, Votorantim' Daud said financial investors are getting back into the zinc game.
"A lot of banks that were holding zinc started to reduce their exposure, especially [amid] the new LME regulations," he said, referring to the LME's crackdown on warehousing practices. "Now money managers are going back into zinc; we expect to see more of that in 2016."
