Steel Products Prices North America

MetalMiner: Time to Buy as Zinc Prices Decline in a Major Way

Written by Brett Linton

Steel Market Update is including the following MetalMiner article about zinc for a number of reasons. The run-up in zinc spot pricing late last year and early this year created a situation where the domestic North American steel mills felt they had no choice but to increase the coating extras used when putting zinc onto a cold rolled or hot rolled substrate in order to make galvanized steel. Prices for zinc have come off but MetalMiner is of the opinion that the fundamentals causing zinc prices to move higher still exist and now is a buying opportunity for zinc buyers. The second reason is to let everyone know that Lisa Reisman, one of the co-founders and director of MetalMiner will be a speaker on the subject of metals and metal pricing at this year’s SMU Steel Summit Conference in Atlanta on August 28-30, 2017.

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Zinc prices have fallen sharply over the past two weeks.

While others panic and see this decline as the end of zinc’s bull run, I see this price pullback as a great opportunity to purchase the metal at a good price.

The 3-month LME zinc price. Source: MetalMiner analysis of LME data.

After doubling in price since the beginning of 2016, prices are now struggling in the $3,000 per metric ton level. However, the price weakness seems to come from long position buyers exiting those positions rather than shorts coming to the market. This suggests that sentiment hasn’t shifted to bearish for now. At the same time, we see strong support near $2,500/mt, which could provide a good opportunity to time purchases.

Short-Term Resilient Supply but What About Long-term?

The recent price weakness can be attributed to fears that high prices could trigger more mine supply to come online in China. Refined zinc supply remains resilient in the country, where refined production rose by 4.4% year-on-year in the first two months of 2017. However, they might prove less resilient in the coming months after some of China’s largest zinc smelters jointly announced they will curtail roughly 540,000 mt of annualized capacity over an unspecified period of time. The announcement comes after China’s largest zinc smelter, Zhuzhou, started an indefinite maintenance period for 100,000 mt of smelting capacity earlier in March.

In addition, the second-largest zinc plant in North America has been running at a 50% of normal operating levels since a strike began on February 12. Typical annual zinc production at the plant is 270,000-275,000 mt a year.

China’s Demand Still Strong

Other analysts might be attributing the recent price weakness to slowing Chinese demand. That really hasn’t been the case. China reported growth of 6.9% in the first quarter, its fastest pace since the third quarter of 2015, fueled by credit and infrastructure spending as well as a stubbornly booming property market. The pace accelerated from the 6.8% expansion in the previous quarter and puts China well ahead of its annual target of about 6.5% growth. Growth prospects in the country seem to be improving thanks to easing trade tensions with the U.S.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Construction and infrastructure make up for more than 60% of zinc’s demand. In China, investment in buildings, factories and other fixed assets grew 9.2% in the first quarter, while construction starts rose 11.6% during the same period. If that’s not enough, in April, China’s government announced plans to build a new megacity from scratch. The construction will require massive amounts of steel and industrial metals.

What This Means For Metal Buyers

Despite recent price weakness, zinc’s fundamentals remain strong. It seems way too early to call an end of zinc’s bull run. This month buyers might find a good opportunity to purchase zinc. You can check out our monthly metal buying outlook for monthly strategies on how to time your purchases.

See the article in the MetalMiner website here.

Brett Linton

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