Patricia Mohr, vice-president of economics and a commodity market specialist at Scotiabank, believes zinc “will be the next big base-metal play for investors.” She forecasts prices will average US94¢ per lb. in 2014 — with most of the gain in the second half of the year — and climb to US$1.30–1.40 per lb. in 2015. Last year zinc prices averaged US87¢ per lb.
Mohr cites two major reasons for her bullish outlook in her latest edition of Scotiabank’s Commodity Price Index. First, that “gains in world mine production over the next four to five years will likely fall behind global demand growth,” which she puts at 4.7% per year between 2012 and 2017.
That’s because of “unusually high depletion at major mines in the face of tighter capital availability for new mine development,” and upcoming mine closures such as Century in Australia and Lisheen in Ireland. Both are expected to shut their doors for good in 2015. Last year Canada saw the closure of two zinc mines: Brunswick and Perseverance.
In addition, Mohr argues that the major end-users of primary zinc in galvanized steel such as the construction and car industries “are picking up.” Global vehicle sales last year hit a record 81 million units, she notes, and are expected to reach 86 million units this year. In China, sales of passenger cars and cross-over utility vehicles last year increased by more than 20%.
In the building industry, meanwhile, U.S. non-residential construction — in particular office buildings — “appears to be turning around,” she says, and a “broader recovery in non-residential construction is expected across the G7 in the second half of the decade.”
In a report published Jan. 22, Morgan Stanley forecast that the worldwide deficit of the metal will reach 120,000 tonnes in 2014, and the investment bank expects average cash prices will increase by 10%, according to a Bloomberg report in mid-February.
Mining analysts who closely follow base and other metals, like Raymond Goldie of Salman Partners in Toronto (who described himself in a research comment late last year as being “modestly bullish on zinc”), notes that he expects “lacklustre zinc prices this year and next,” but anticipates “prices to be over US$1 per lb. in 2016.”
The mining analyst has noted in research over the last few months that the market is “likely to never again see zinc prices below US80¢ per lb.,” and points out that one-quarter of the Western world’s zinc mine supply is scheduled to close by 2017. At the same time, China has become more and more dependent on zinc production from the West. China’s imports of the metal from Western producers “have been growing at 36.4% per annum,” he says, at the same time as zinc consumption in the West has been growing at 2.5% a year.
Andrew Stonkas, vice-president of base metals marketing at Teck Resources (TSX: TCK.B; NYSE: TCK), forecast in a corporate presentation in November 2013 that global mine production would fall by 1.5 million tonnes between 2012 and 2023. Zinc accounts for 20% of Teck’s business.
In a research report published last November, Joel Crane and Peter Richardson of Morgan Stanley argue that zinc, along with lead, will record sizable market deficits in 2014. They point out that the global inventory of refined zinc, along with the stock-to-consumption ratio, has been falling steadily since reaching a peak in January 2013.
“In its last cycle, when the global zinc market moved from surplus to deficit between 2004 and 2007, the annual price rose from US38¢ per lb., or US$827 per tonne, to US$1.48 per lb., or US$3,250 per tonne, by 2007,” they write. “While we do not expect such a breathtaking pace this time around, our price forecast is appreciating through 2018.”
The analysts calculate that annual deficits of refined zinc between 2004 and 2006 resulted in an average market deficit of 295,000 tonnes — or 3% of global refined consumption. The market began another cycle of deficits in 2012, according to their figures, and they predict the new cycle will extend through 2018, “with an average annual deficit in excess of 2% of global refined consumption during this period.”
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