Rally in zinc price raises spectre of substitution – by Eric Onstad (Reuters U.S. – September 19, 2017)


LONDON, Sept 19 (Reuters) – A sharp rally in zinc prices is posing the threat that industrial users will find ways to substitute the metal with cheaper alternatives or use less, curbing overall consumption.

High prices may also dampen a nascent move by Chinese automakers to use more zinc for galvanising, while the Western car sector could employ thinner coats of zinc alloys to help meet tough emission rules by cutting vehicle weight.

“We expect zinc prices to carry on going up for at least another 12 months, so I think there’s clearly a growing risk of demand destruction in some shape or form,” said analyst Andrew Thomas at consultancy Wood Mackenzie. Benchmark zinc on the London Metal Exchange has doubled since January last year, hitting a peak of $3,231.75 a tonne in late August, the highest in a decade.

Analysts say prices would have to remain high for around six months to spur substitution, but many expect shortages to become more severe, further lifting values. Wood Mackenzie forecasts zinc will average $3,875 next year, up a quarter from $3,097 a tonne at the close on Monday.

“The longer prices stay above these rarefied levels, the more chances of demand being whittled away,” said Robin Bhar, head of metals research at Societe Generale in London.

For the rest of this article: https://www.reuters.com/article/zinc-substitution/rally-in-zinc-price-raises-spectre-of-substitution-idUSL5N1LV2TX