start here

start here

The Daily IKN email digest, get all daily posts sent to you next day (& no ads)


Zinc: Demand to outstrip supply in 2016 (from IKN364)

Think Zinc, baby. Think zinc.

A small section of IKN364, out last night. One small edit made, the name of the company we're buying to take advantage of the bright future in zinc.


Zinc: Demand to outstrip supply in 2016
Yes, shameful but it’s true, your author is going all zinc-pumpy on you after sneering at the “it’s gonna happen anytime now folks!” perma-pumping of the sellside in zinc for years. This “Get On Zinc Before It Flies!!!” is a narrative (with obligatory three exclamation marks) that’s been sold to us for years, but this time it really seems to have some fundamentals to back up the wishful thinking and that was underscored last week by the International Lead and Zinc Study Group (ILZSG) saying this in its latest update, dated April 28th 2016 (29):

“Information recently collected from ILZSG member countries indicates that global demand for refined zinc metal will exceed supply by 352kt in 2016. This deficit is higher than that indicated by the Group during its meetings last October with the difference due primarily to additional cutbacks in mine production announced over the past six months.”

The combination of higher expected demand in China (+4.5%) as well as in other consumer countries, plus the closure of another raft of mines, has altered the supply/demand balance significantly and here is a chart of how the current 2016 forecasts compare to previous years.

The result is record demand, only slight increase in supply, and the only recent year with a comparable deficit of total production (mine production is most but not all of the Zn supply to market) is 2011 (the last year that zinc both went above and stayed above U$1.00/lb for longer than just a quick spike). But that’s not all, because when you comb through the details of the ILZSG report we also read that further supply crimps are in the cards. To quote the bulletin, “...taking into account the predicted decrease in zinc mine supply, zinc metal production expectations in some countries may be subject to downward revisions later in the year”.

Overall, a bullish price scenario right at a time when commodity prices across the board are rallying. The type of oversupply in the copper market is not happening here. That’s another reason to like (name removed) in the weeks to come.