Zinc prices increase likely as global demand shock wanes, says Fitch Solutions

Zinc prices are likely to edge higher in the next three to six months, as the negative shock to global demand from the Covid-19 outbreak lessens, says financial risk management, solutions and insights company Fitch Solutions Country Risk and Industry Research.

Support for prices, it notes, will come from a gradual recovery in demand for zinc from the steel sector as mills ramp up production.

The company notes that the latest data from the World Steel Association suggests that the worst of the contraction in global steel production has passed, with output having contracted by 8.7% year-on-year in May.

Crucially, steel production in China looks to be gathering steam, with a 4.2% year-on-year increase recorded in May.

As of June 22, three-month London Metal Exchange zinc had already recovered by 14.7% from a March low of $17 844/t, and Fitch Solutions expects a further rebound in the coming months.

The rebound in steel production, and thus zinc demand, will be particularly sharp in China, notes Fitch Solutions, adding that the country accounts for around half of yearly global zinc consumption.

The sharp weakness in zinc prices since January has, however, forced Fitch Solutions to revise down its price forecast for 2020, with the company now forecasting an average price of $2 100/t for this year, compared with its previous forecast of $2 250/t and an average of $2 507/t in 2019.

This new forecast reflects Fitch Solutions’ view that the rebound in prices will be kept in check by a sluggish reduction in global production capacity over the coming months. The company forecasts global refined zinc production to grow by 2.1% this year, while consumption growth slumps to 0.1%.

As a result, Fitch Solutions expect the global zinc market will post a surplus of 71 000 t this year, compared with a deficit of 189 000 t in 2019.


Fitch Solutions is also revising down its long-term zinc price forecasts as the fundamental outlook has deteriorated.

The company now forecasts prices to average $2 055/t over 2020 to 2024, compared with its previous expectations of an average of $2 145/t.

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