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Volatility hits critical Zinc supply

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An anticipated supply surplus of 56,000 metric tons of zinc in 2024 is now expected to be a 164,000 ton supply deficit, according to the International Lead and Zinc Study Group.

Demand for zinc is forecast to rise 1.8% to 13.83 million tonnes in 2024, but zinc mine production is falling for the third consecutive year:

  • 1.4%, to 12.06 million tonnes, in 2024
  • 2.1% in 2023
  • 2.4% in 2022

For a critical metal that ranks as the fourth most produced metal in the world — this is a problem.

Prices have reacted accordingly — as well as zinc refiners, with a group of 14 Chinese smelters, accounting for around 70% of the country’s refined zinc production, have agreed to cut output as capacity far outpaces supply.

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The global zinc market is worth an estimated US$40 billion a year, and ranks as the fourth most produced metal in the world by tonnage, exceeded only by iron, aluminium and copper.

Zinc is listed as a critical mineral in the US for good reason; for example:

  • approximately 60% of zinc is used to galvanize, or create a protective coating, on steel and iron to prevent corrosion. This is, for example, essential in renewable energy technologies such as solar panels and wind turbines that are exposed to significant variations in weather.

    For example, a 10MW offshore wind turbine requires 4 tonnes of zinc; a 100MW solar panel park requires 240 tonnes of zinc.

    By 2030, the International Zinc Association estimates wind and solar power will consume 228,000 tonnes of zinc annually, and 300,000 tonnes for energy storage
  • zinc is also used as an alloy in die-castings, important for the automotive and electrical manufacturing sectors.

    The forecast growth in zinc demand in the automative industry is expected to be 22% by 2030
  • approximately 25% of its use in zinc compounds by the rubber, chemical, paint, and agricultural industries. The use of zinc in fertilizer is forecast to increase 25% by 2030
  • zinc-ion batteries are also in development, making up more than 5% of early stage electric battery venture capital in 2023, with the first zinc-ion battery megafactory opened this year 

Overall, demand is anticipated to increase 1.8% in 2024, to 13.96 million tonnes. China’s demand of 7.4% in 2023 is expected to fall to 1.4% in 2024, but demand in the US, Turkey, India, Italy and Japan is expected to rise.

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Short-term supply problems adding up

Zinc mining in some of the world’s major producers has hit a variety of problems that have begun to compound.

In Australia, which accounts for 10% of global production, making it the world’s third largest producer of zinc:

  • Glencore’s McArthur River operations were halted after extreme rainfall disrupted logistics in March
  • China’s MMG Ltd halted operations at its Dugald River zinc mine for about two months of repair work in July

In South Africa, which produced 224,400 metric tons in 2022:

  • ore production from the Gamsberg zinc mine reportedly fell from February-March due to stripping issues, with delays of two months for planned shipments

According to FastMarkets, the Dugald River and Gamsberg mines are major providers of mainstream zinc feedstock to smelters in China.

In the US, the fifth largest zinc producer in the world, accounting for 6% of supply:

  • ore grades are declining in the Red Dog mine, one of the largest zinc mines in the world
  • Nyrstar suspended operations at two zinc mines in November 2023

In South America, which, as a region, accounts for approximately 15% of global production (Peru alone produced 1.35 million metric tons in 2022, making it the world’s second largest producer):

  • the Antamina mine in Peru, one of the largest copper/zinc mines in the world, has reportedly seen 50% lower zinc production in 2024
  • Peru’s Volcan miner halted operations at three mines due to permitting issues
  • in Mexico, the San Martín mine was closed due to a blockade in April

In Europe, output fell 11.4% in 2024 as the region’s largest zinc mine, Swedish miner-smelter Boliden’s Tara mine in Ireland, was mothballed in July 2023 due to high energy costs and weak prices, producing no zinc from Q4 2023; as well as the Aljustrel mine in Portugal.

In Russia, the new Ozernoye mine (Russia’s largest zinc mine and fifth largest in the world, designed to produce up to 350,000 metric tons of zinc in zinc concentrate) was delayed at due to a fire and Western sanctions, pushing back the start of production from 2023 to late 2024.

FastMarkets suggests these issues could all add up to an estimated deficit of about 300,000 tonnes of zinc concentrate worldwide in 2024.

Falling demand

China is the world’s largest zinc refiner, producing about half of the world’s refined zinc — but smelters in the country are making production cuts. The main reasons include:

  • tightening zinc ore supply raising costs
  • demand falling, reducing profits 
  • and increased processing fees

Demand for refined zinc in China has struggled with the downturn in China’s economy and housing market impacting the country’s steel sector.

To put the scale of a downturn in China’s steel industry, and what it means for the zinc market, in perspective: each year China produces as much steel as the rest of the world combined, approximately 1 billion tonnes.

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This fall in demand has meant stock piles of refined zinc have increased to record levels. In LME warehouses, zinc and lead stocks have risen x10 since May 2023 to almost 430,000 tons by August 2024.

“Soft demand in China is the ultimate reason. Traders are waiting for the Chinese demand recovery so they can ship these supplies to the world’s largest market quickly”

— Jia Zheng, head of trading with Shanghai Soochow Jiuying Investment Management Co. told Reuters

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Conclusion

If supply problems are only short-term and demand is falling — then zinc prices should be expected to fall significantly.

“It’s good news! There’s finally some new volume coming out in a market where everyone is starving for concentrates” — a trader based in Shanghai told FastMarkets.

Also in the Democratic Republic of Congo, the Kipushi zinc-copper-germanium-silver-lead mine is the world’s highest-grade zinc mine, with first concentrate produced in June 2024.

And, in Ireland, Swedish miner Boliden is set to resume production at Tara, Europe’s largest zinc mine.

However, so far, the price trend line for zinc remains up. Why?

The main reasons, we suggest, include:

  • China has just announced stimulus for its economy, including lower borrowing costs, injecting 1 trillion yuan liquidity into the economy, and easing mortgage repayments for households
  • zinc production is expected to fall to 12Mt by 2030, with any production increases offset by falls in Ireland, the US, Australia and Canada
  • continued Western sanctions on Russia that may complicate any off-take agreement between Chinese smelters and Russia’s Ozernoye mine
  • concerns over stockpiles and potential supply may keep some mines closed
  • and unexpected disruptions to mining operations and supply (from weather to blockades) should, ironically, always be expected

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Zinc is such an enormous market that small fluctuations can have significant impact on price. And the trend for production is down, which means more volatility.

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about the author

Picture of Anthony Milewski

Anthony Milewski

Anthony Milewski has spent his entire career in the capital markets, including as company CEO, board director, advisor, founder and investor, with a focus on the energy transition and commodities.

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