Steel Products Prices North America

Higher Zinc Prices Forecasted

September 23, 2014

Zinc prices hit a three year high in September at $2390/t, escalating quickly from the mid $1900s in March. Although the prices have moderated in the last few weeks zinc, as of September 18, zinc was at $2247/metric ton on the LME index.

The soaring prices are due to production shortfalls and higher demand. The commodity is used for numerous applications, including galvanized steel coatings and currency. The recovery of the construction industry and the strong auto industry has led to bump in demand. Zinc production however is facing a shortage. Two mines are expected to close next year that produce 7 percent of the global supply. Replacing that production is estimated to take at least two years, pushing the shortfall into 2018.

Stockpiles of LME warehoused zinc were at a 3.5 year low in July and users are beginning to draw on supplies to meet demand that rose 7.7 percent in just the first half of 2014. According to the International Lead and Zinc Study Group (ILZSG), demand for zinc exceeded output by 248,000 tons through July of this year, compared to a surplus of 15,000 tons of production in the same time period last year. LME warehouse inventory has dropped to 19 days of supply from 24 at the beginning of the year.

China has been an over-importer of zinc that has been accumulating in Chinese warehouses. Imports are likely to decline however, says Goldman Sachs, since China has been ramping up production to satisfy domestic demand. The decrease in imports could put pressure on LME prices.

Analysts are forecasting zinc prices will keep climbing as some of the largest mines are depleted and demand continues to escalate.

GoldmanSachs anticipates zinc will hit $2,500/t by mid-2015. Scotia Bank forecasts zinc prices will climb to $2766 in 2015 and $3,527 in 2016, due to tightening supply.

Phil Newman, CEO of CRU Consulting places zinc at $4000/tonne by 2016/2017, up nearly 66 percent over 2-3 years.

Although the steel industry is primarily concerned with zinc for galvanized products, it is interesting to note that the amount of zinc contained in a single penny now costs .58 cents, for a total manufacturing cost of 1.6 cents per penny. So far a cheaper alternative for the currency has not been found, including steel because of manufacturing costs.

“No alternative metal compound would lower the cost of the penny [to less than one cent], we just don’t think it can be done, said Tom Jurowsky, a spokesperson for the U.S. Mint.

The higher zinc spot prices have already impacted the steel industry as all of the U.S. and Canadian steel mills have announced new zinc coating extras on galvanized steels. These increases were announced as the metal approached $1.10 per pound. The question becomes what will happen to the galvanized products and cost should the higher prices come to be. Spot zinc at $2500 per metric ton is $1.134 per pound – slightly above the level when the new extras were announced. However, if prices were to climb to $2766 per metric ton ($1.25/lb) or even $3527 per ton ($1.60 per pound) as suggested by Scotia Bank then buyers can expect coating extras to climb to reflect the higher costs.