LONDON (Reuters) – Expectations for a rise in zinc concentrate supplies in coming years have driven down the metal price to one-year lows, but smelting capacity constraints suggest the sell-off is premature.
Benchmark zinc on the London Metal Exchange (LME) hit $2,473.85 a tonne on Monday, its lowest since mid-June 2017 and 31 percent below February’s 11-year high of $3,595.50. Prices of the metal, which is used to galvanise steel, have underperformed other LME metals this year.
Projects that will deliver more zinc concentrate to market include Vedanta’s Gamsberg mine in South Africa and three Australian projects, namely Dugald River owned by MMG, another mine run by New Century Resources and Glencore’s Lady Loretta mine.
Wood Mackenzie analyst Jonathan Leng expects supplies of zinc concentrate to rise by 300,000 tonnes in 2018, 900,000 tonnes in 2019 and 1.25 million tonnes in 2020, but he says this will not mean a swift surge in supplies of refined metal.
“With little new smelter capacity being built in recent years outside China and the construction of new capacity in China having slowed dramatically, refined production may be constrained by smelter capacity,” Leng said.“Limiting the build-up of metal inventories, this would provide support to the zinc price,” he said.
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