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The global zinc market may be less oversupplied in 2014 than what current estimates suggest, analysts at Commerzbank said in a report Monday.
In fact, a gradual tightening of zinc supply -- and solid demand growth -- should be enough to support prices at an average $2,000/mt in 2014, the bank said.
"The zinc price should be well-supported in view of the tightening of the global zinc market," the analysts said in the report. LME three-months zinc was trading at $1,924.50/mt Monday.
While the prevailing viewpoint is that new zinc projects coming on line will tend to offset the large existing zinc mines that are depleting, the analysts said, miners developing new projects might not be able to afford bringing the projects to production in the current weak price environment.
"Like with copper, we believe that the International Lead and Zinc Study Group (ILZSG) may have pitched its estimate of a 115,000-ton supply surplus on the global zinc market next year too high," Commerzbank said, "given that a number of large-scale zinc mines are nearing or have indeed reached their end-of-life."
For example, the report said, Canada's Brunswick and Perseverance zinc mines stopped producing recently, the Lasheen mine in Ireland will wind down next year, and the world's top-producing zinc mine, Australia's 500,000 mt Century mine, will run dry in 2016.
But new projects to replace this production may simply be unaffordable, Commerzbank said, and the new projects started recently are smaller-scale and still years away from production.
Zinc projects in the pipeline include Burkina Faso's Perkoa, Canada's Bracemac McLeod and Lalor Lake, Mexico's Velardena, Russia's Kyzyl Tashtygskoe, Indonesia's Dairi and Australia's Dugald River.
Pending expansions include India's Rampura-Agucha and Australia's Mount Isa. New mines and expansions represent about 800,000 mt in new zinc supply, according to an earlier BNP Paribas report.
IMPROVED DEMAND ALSO KEY
With that background, reignited zinc demand -- led by the China's steel galvanizing industry -- will also contribute to a creeping zinc supply tightness. Global zinc demand is expected to grow by 5% in 2014, with Chinese demand alone estimated at 5-7% growth, the report said.
In fact, Chinese galvanized-steel production has shot up 12% in 2013 versus last year, with the country churning out 3.5 million mt of galvanized steel per month on average so far this year, according to the report.
In addition, the construction and automotive industries are also contributing to the higher demand, Commerzbank said. Citing data from China's state-run research firm Antaike, the bank said China is expected to import 500,000 mt of zinc in 2014.
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