Base metal is full of surprises (and not always good).
Zinc has started to show signs of life again. In recent weeks the spot price of zinc crossed over $1/lb, up from a one-year low around 0.90/lb.
It seems the prospect of a growing zinc deficit is back in play. The notion of zinc deficit, long forecast by analysts and base metal miners, has already created one false dawn.
With such a deficit in mind, zinc fever caught the market in late 2013 and persisted to mid 2014, driving the price from near $0.80/lb to around C$1.10. LME zinc stocks had peaked after all and begun to fall. Yet eventually so did the price of zinc.
The market realised it may have gushed and rushed on zinc a little early. There was the fact that the stocks were really quite high to begin with, so they would take time to shrink.
Indeed they’re still shrinking and are about half the early 2013 peak. So zinc came back down to earth, plumbing $0.90 this year. Now, the question is, with zinc surging again is this time any different?
Zinc bulls will point to the fact that LME stocks have halved over the course of two years.
Yet, as Reuters columnist Andy Home recently noted, it seems at least some of that falling stock may be a distortion. He wonders if stocks might be hiding away, rather than feeding demand (zinc = galvanising).
Bulls will also point to closing mines. Indeed, this year there will be important closures. Chief among them are Vedanta’s Lisheen mine in Ireland and MMG’s Century mine in Australia.
Yet alongside this narrative of closures, are mine expansions. Indeed, big ones. This year. You hear less about these.
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