A combination of factors is causing unrest in the global zinc market. Particularly, the US-China trade war has dampened growth prospects for the global economy. Also, there is subdued demand in the market in the face of poor manufacturing data from major economies like Germany and China.
Supply and demand dynamics
The dynamics of the supply and demand of base metals is one of the major indicators of the health of the global economy. Also, the fluctuation of the futures for the base metals is another way through which one can determine the state of global trade. Since the beginning of 2019, a clear trend seems to be establishing where base metal futures have continued to trade low.
However, the last week has encountered varied situations in different markets. In India, for instance, Zinc futures dipped on Wednesday, May 29, 2019, by 0.71% to Rs 209.80 for each kilogram. Specifically, the dip occurred after speculators moved to cut their exposure to the futures. In particular, there is a general uncertainty in the base metals market as demand continues to plummet.
According to Zinc outlook for 2019, the rate of demand for base metals is growing at a slower pace than that for supply. To be sure, global Zinc supply is expected to grow at 3.8% CAGR between 2019 and 2022. As such, the total Zinc output in the market by 2022 is expected to be in the region of 15.7 million tons. Therefore, the market is expected to move from the current supply deficit to a supply surplus in 2022 and beyond.
New Projects In The Zinc Market
One reason behind the high growth rate of Zinc supply is the increasing number of new projects. Between 2012 and 2016, many miners faced various problems which forced them to close down their projects. By 2016, there was a market balance of a little over one million tons of Zinc. The trend persisted through 2018, but supply has begun outpacing demand.
One of the firms engaged in new Zinc-related projects is Shine Minerals Corp. On April 25, the company unveiled a drill program targeting historic outcrop trenches in Watts Lake, Saskatchewan, Canada. The area is expected to provide high-grade Zinc, which will help plug the shortage, which has plagued the market since 2012.
Commenting on the matter, Ross McElroy, the Shine Minerals President, said, “Our drill program will focus on specific areas of the Main Zone where surface sampling from Trench 4 returned particularly high Zinc assays…”
Base Metals Trading Sideways
The US and China are the world’s largest economies, and therefore, they are among the largest markets for base metals. However, the countries are still locked in a trade war whose end is uncertain. The tariffs which the economies have slapped on each other are engendering an uncertain environment in global trade.
Already, the tariffs have led to weak manufacturing data in China and the US. The Eurozone has also reported weak data as a fresh round of tariffs on Mexico loom. As such, investor sentiment is badly soured, the metals are trading sideways. Particularly, three-month copper rallied 0.1% to $5,849 on the London Metal Exchange (LME). Aluminum dipped 0.1% while zinc rallied 0.3%.
On the contrary, copper contracts on the Shanghai Futures Exchange gained 0.2% to $6,699.19 per ton while aluminum slipped 0.8%. Also, nickel and Zinc dropped by 1.2% each.