Zinc Springs Back To Life As It Nears A Three Year Price High Of $1 A Pound – by Tim Treadgold (Forbes Magazine – June 26, 2014)


Any commodity which rises by 5% over just two weeks is worth a closer look, except when it is zinc, the ultimate industrial metal, which has disappointed for so long that even the prospect of an even stronger price recovery is being ignored.

Used almost exclusively in galvanizing steel to protect it from rusting zinc has been suffering from chronic over-supply and a depressed price which has seen it limp along at less than $1 a pound for the past three years.

That psychological barrier of $1/lb could be broken in a matter of days with the zinc price on the London Metal Exchange reaching 98.69c on Wednesday, up 5c since June 12.

What’s driving zinc is the simplest of all economic forces. The over-supply is fading,. Stockpiles are shrinking. Old mines are reaching their use-by dates, and no major new mines are planned.

Over the next three years an estimated 1.5 million tonnes-a-year of newly-mined zinc will disappear from the market thanks to mine closures, the equivalent to losing 11.5% from a market which consumes 13 million tonnes of zinc a year.

The world is not running out of zinc, but there is the prospect of a glut morphing into a shortage for immediate delivery over the next few years and that should be sufficient to drive the price back towards the $1.20/lb mark where it was five years ago, and perhaps up to the $2/lb mark last reached in 2006.

A 50% Fall In The Stockpile

According to an industry lobby group, the International Lead and Zinc Study Group the supply/demand equation has already flipped around. It estimates that global production of zinc started to fall behind consumption last year, for the first time since 2006, with demand from steel mills being assisted by a draw-down on a stockpile which at the LME alone stood at more than 1.2 million metric tons with more in private warehouses.

Yesterday’s reading of the LME zinc stockpile stood at 671,250 metric tons, taking the decline in stocks to almost 50% over the past two years.

For the rest of this article, click here: http://www.forbes.com/sites/timtreadgold/2014/06/26/zinc-springs-back-to-life-as-it-nears-a-three-year-price-high-of-1-a-pound/