So you think the commodities supercycle is over? For zinc bulls, it may be just beginning.
The price of zinc has remained subdued since the financial crisis even as copper, gold and tin rose to record highs. But the metal, used to rustproof steel in everything from cars to building materials, is gaining an increasingly vocal following among analysts and investors who believe that it could witness a sharp rally in the coming years.
“Certainly when you compare it to other metals, I would say the outlook for zinc is one of the most constructive,” says George Cheveley, a metals and mining portfolio for Investec Asset Management.
Wood Mackenzie, a leading consultancy, predicts that zinc prices will average more than $3,500 a tonne from 2016-2018 – compared with just $1,940 so far this year.
After years of falling prices, a zinc boom could deliver sizeable profits to major miners such as Glencore Xstrata, the world’s biggest producer and trader of zinc; Canada’s Teck; as well as trading houses such as Noble Group which have carved out positions in the market.
The bullish argument is based on the expected closure of a number of large zinc mines – together with a lack of new projects ready to replace them. Unlike copper and iron ore, where a wave of new supply is poised to hit the market after mining companies spent billions on new projects and expansion, years of relatively low zinc prices have disincentivised investment.
“There is likely to be a structural deficit in the zinc market in the short to medium-term future,” said Daniel Maté, head of zinc trading at Glencore Xstrata and one of the trading house’s top shareholders, at an investor briefing last month.
At issue is the closure of some of the world’s largest zinc mines. Brunswick and Perseverance in Canada, owned by Xstrata, closed earlier this year. Then late next year Vedanta is planning to close Lisheen in Ireland, among the top dozen largest global mines. And in 2016 the world’s third largest zinc mine, Century in Australia, is due to cease production.
At the same time, there are few large-scale zinc projects ready to fill the gap left by these closures. And those that exist are suffering delays: just on Friday, MMG, the international mining arm of Minmetals of China, said its Dugald River project in Australia was “unlikely” to meet a previously announced plan of starting production in 2015.
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