The year 2016 can well and truly be said as the year of Zinc in Base Metal pack although 1 and a half months is still left. The price rise this year was not only phenomenal but backed by real money buyers who stepped in whenever they found a little bit of correction in the counter.But was the price rise actually backed by fundamentals or sentiments or a combination of both ? One thing we can decipher from the physical buyers was that there has been supply tightness in terms of availability of ores. The closure of zinc mines due to depleted ore grades and an announcement from Glencore to cut their existing production due to depressed prices also changed supply dynamics.
Zinc prices also got a boast when iron ore – major ingredient of the steel industry for burning of furnaces recovered and in turn steel prices got a much needed reprieve. Ore supply shortages have driven the prices up.Century and Iisheen mines closed down taking away a total of 760,000 tonnes of output from the market. Glencore further cut 500000 tonnes from their existing supply,Meanwhile Hindustan zinc was forced to reduce their output by 830,000 tonnes due to ore shortage as the contract for zinc mines got involved in controversy and new mining policy by the Government. All this combined to have a major impact on prices.Moreover with zinc prices subdued for the major part of the last decade no big mining project was developed.
In terms of sentiments there was a marked departure While all the analysts had written down metals ,it started to rise as some stabilization was seen in Chinese economy with the help of Government Infrastructure spending. Gold where expectations of a sub 1000 price levels were looked upon ,advanced with healthy gains. Brexit also contributed to it’s rise.Crude oil which was trading below $ 30 recovered to reach $ 50 thereby increasing the manufacturing costs.Overall while the industrious commodities were getting re rated,the metal whose fundamentals were strong i.e Zinc rose exponentially.Steel Industry recovered slowly with demand seen across all sectors.Housing show ed double digit growths.Europe and Japan expanded their balance sheets for their own reasons. The market breath improved helping zinc to further move up.Now can we safely say these very reasons will play out in 2017 as well ?
Some macro economic situations may persist but there are other challenges.With increased prices some miners have already announced production increases for the next financial year. The total official figures comes to around 325,000 tonnes. Moreover an estimated 400,000 tonnes smelting capacity is to start production in China. With prices continuously on the upside share holders of Glencore will pressurize them to start production as it makes good economic sense for production to start as prices are currently hovering at 2550 and they announced cut at 1600. So it is difficult to comprehend what kind of target they are looking for to start production.A good factor for the metal has been Trump’s victory where he has already announced increased spending on Infrastructure which can definitely increase consumption of the metal. Next year the artificial demand created by the Chinese government may subside as the effect and requirements of the initial orders will be fulfilled. Also Chinese Govt wants to cool down the property markets which it feels is over heated.
Till further developments we will be watching every details of the market movements and report our readers on any new situation playing out that can effect it’s prices.
Good Bye and Good Luck.