Zinc

Zinc is the fourth most mined mineral resource in the world. Zinc is mainly used for galvanising - cars, construction, appliances and electronics. Therefore as a base metal it is a strong indicator of economic growth. As the world economy grows and an ever increasing middle-class, so does the demand for zinc. As both population and income grows in the emerging economies the long term fundamentals for zinc remain good.

However, poor economic returns in the 1980's and 1990's resulted in very little exploration over the past 30 years as a result mines are running out with the expectation that 1 million tonnes of supply per annum will be lost from the middle of the decade. Therefore increasing demand and an expected fall off in zinc supply will keep prices firm in the medium to long term.

Irish zinc has always been much sought after with two of the world's largest zinc mines, Tara and Lisheen operating in the country. Both the grade and quality of Irish zinc is extremely high in comparison too many other zinc prospective areas. However, costs are high in most instances Irish mines need a breakeven price of $1,200 per tonne. As prices remain above $1,800 per tonne Irish mines remain profitable. 

Why zinc?  We need to take a look at what is happening in China.

With one of the world's largest populations, and an expected market growth of 6% in 2017, China's passive use of zinc is staggering; spending by Chinese consumers on refrigerators, cars, and laptop computers has caused a surge in demand for zinc, creating a production shortfall that is the largest for that particular metal in almost 10 years.  Moreover, according to Reuters, China's economy grew by a solid 6.8 percent in the first quarter of 2017, the same pace as the previous quarter, due primarily to sustained government infrastructure spending and housing market starts. All that steel need to be galvanized, and what is the primary component of rust inhibitors...?  Zinc.

China is not the only consumer of zinc and zinc related products. India too has significant demand for the element.  The domestic Indian Zinc industry is completely privatized, and there is an assumption that zinc demand will grow in that country by 10% until 2020, based again on infrastructure and consumer products demand.

Worldwide demand for zinc rose 3.5% in 2016, and heading into the second quarter of 2017 the metal is seeing a bullish trend.  Unlike gold and silver, zinc is not considered a crisis asset, but rather benefits from traditional industrial commodity supply and demand.  Geopolitical uncertainty may also contribute to a brighter spotlight on the zinc market as investors consider a breadth of commodities in their portfolios. Analysts are expecting a decline in global zinc supplies in the coming years.

Goldman Sachs views zinc as a bullish metal. "Zinc is the most exposed base metal to Chinese infrastructure" say Goldman's analysts.  The company forecast a 114,000 ton shortage of zinc in 2016, which it expects to increase to 360,000 tons in 2017.  Goldman expects zinc could hit a $2,500 per metric ton price in 6 months.  Looking at Q1'17 market performance, base metals were all over the place, but zinc spiked 20%, slightly ahead of gold at 15.9%.  While gold's performance may have been a reaction to concerns about the Administration in Washington and some profit taking, the performance of zinc was better than expected.  Of all major metals, zinc is the metal most closely connected to infrastructure growth and spending, which will continue to put pressure on zinc mining and production into the foreseeable future.

THIS PAGE WAS LAST UPDATED ON 27 OCTOBER 2017

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