Zinc is a valuable base metal which is critical in infrastructure projects. Any disturbance in the global trade destabilizes the demand and supply of the metal. In the last three months, Zinc prices have been falling consistently, mainly due to the tensions caused by the US-China trade war.
A truce in sight
After a year of push and pull and tariff imposition, there seems to be a truce building between the world’s largest economies. This year’s G20 meeting between President Trump and China’s Xi Jinping appears to have helped mellow the rhetoric around the trade war. To be sure, the two leaders agreed to resume talks and end the debacle soon.
For a long time now, the trade war has impacted global growth, with few infrastructure projects being initiated. Further, the trade war spat seemed to have weakened the manufacturing PMI of China.
Between March 2018 and February 2019, China’s manufacturing PMI dropped to a little under 49.5 from 51.5. Being a heavy user of zinc and other base metals, the demand for these metals sunk. Subsequently, their prices dropped significantly.
Zinc prices hit
In particular, zinc has seen a considerable price slump between early May and mid-June 2019. On London Metal Exchange (LME), zinc futures dropped from over USD 2700 per metric ton to just above USD 2400 per Mt. At the same time, futures on the Multi Commodity Exchange of India (MCX) dropped from Rs 220 to Rs 205 in the same period.
The slump in prices was mainly the result of the trade war which had threatened to grind global trade to a halt. To be sure, the tariffs which China and the US had imposed on each other primarily affected manufacturing. Also, the two economies have produced weak economic data in the last year, signaling a slowing growth. It has adversely impacted the global zinc market.
Inventories down, production levels set increase
Nonetheless, the demand for the base metal is on the rise. To be sure, the International Lead and Zinc Study Group (ILZSG) noted that there was a 15,000-ton deficit in the zinc market during Q1 2019. In a similar period in 2018, there was a 37,000 tons surplus.
ILZSG further noted that LME-approved warehouses were experiencing depleting inventories. To be sure, inventory levels dropped 60% from August 2018 to 100,150 in June 2019. As such, there could be a shortage at the LME due to higher demand, and this could boost the price of zinc.
Also, the production levels of zinc are on the rise. Mainly, GlobalData statistics show that production slumped between 2012 and 2018 due to cases of mine closures and production cuts. However, growth in new zinc mining projects after 2018 will see the market grow at 3.8% in 2022.
Significant companies like SHINE MINERALS CORP. (TSX.V:SMR) are also reporting mineralization of their drill programs. In a press statement, the Canada-based company revealed that the seven holes under investigations returned encouraging results.
As per Ross McElroy, President of the company, “The initial results from drilling at Watts Lake are very encouraging, with all seven holes hitting mineralization, including intermittent mineralized intervals as wide as 43m.”