The zinc price has been trumped. The US presidential election result, and planned increase in infrastructure investment, coupled with China approving a US$36bn plan for new rail links, has resulted in the zinc price closing in November at US$2,686 (US$1.22), 9.5% higher than the October close. Strong real estate and infrastructure construction growth in China is expected to keep zinc demand high in the near term, resulting in the zinc price averaging US$2,050/t (US$0.93/lb) in 2016 before increasing to US$2,249/t (US$1.02/lb) in 2017.

The zinc price averaged US$2,560/t (US$1.16/lb) in November, 11% over the October average. The price increase was primarily in the second half of the month; coinciding with the announcement of Chinese economic stimulus and after the United States presidential election.

  • Chinese demand growth, and world concentrate and refined zinc deficits of 498kt and 314kt, coupled with historically low LME/SHFE inventories, are expected to keep zinc prices high over the remainder of 2016.

High demand and market speculation continued to reduce LME stocks during November. LME stocks closed November 2% lower than October at 442kt. Despite the decline, LME stock levels are in line with the yearly average, but remain 15% below the 2015 average. Deliverable stocks on the SHFE followed the LME lead, falling 7% month on month to 152kt. The proportion of SHFE stocks on warrant rose over the month, from 54% to 60%. This is in stark contrast to 2015, when the average proportion on warrant was only 24%.

Chinese smelters remained proactive in November as they looked to take advantage of the higher prices and strong demand from downstream consumers.

  • Hechi Nanfang lifted output to 30ktpm, 20% above nameplate capacity at its 300ktpa smelter in Guangxi Zhuang, this was the third month in a row in which the smelter had lifted production above capacity. In October, the smelter produced 28kt of finished zinc.
  • Xiangyan Feilong increased the operating rate of its 280ktpa smelter in Yunnan, from 53% of capacity in October to 62% in November. The smelter has not cited zinc concentrate supply issues as it sources its feed domestically. The smelter has noted that processing of imported concentrate has become expensive.

    Chinese smelters continue to predominantly rely on domestic production. In October 2016, China imported 138.5kt of zinc in concentrate, a decline of 9% month on month and 57% year on year. AME believes the decline is the result of higher Chinese domestic production in addition to a tightening zinc concentrate market outside of China. AME estimates Chinese zinc in concentrate production for the September Quarter of 2016 totalled approximately 1.4Mt, a decline of 2% quarter on quarter and an increase of 14% year on year. Despite concentrate imports declining, demand has not fallen away. Spot treatment charges for imported concentrate averaged US$67/t in October, 30% lower than the previous month, as smelters competed for available feed.

  • China’s largest zinc smelter, Hunan Zhuzhou’s 500kt smelter in Qingshuitang is currently running at an output of 40ktpm, 4% below capacity. The smelter has cited a tight concentrate market for the lower output, and does not see raw material availability increasing in the near term.

Glencore seems unaffected by the concentrate shortage. Finished zinc production from its European smelters totalled 199kt during the September Quarter of 2016. This represented no change quarter on quarter or year on year. Korea Zinc reported its September Quarter results during the month. Zinc production at its 650kt Onsan smelter in Korea fell of 11% quarter on quarter to 148.9kt. AME believes the decline was the result of annual maintenance being completed on the sulphuric acid plant during the quarter. AME forecasts Onsan will produce 640kt of zinc in 2016, 10% more than in 2015.

With the completion of the September Quarter reporting, AME believes zinc in concentrate production outside China  totalled 1.8Mt. This stemmed from mixed results from a number of significant mines.

  • Sumitomo’s 275ktpa San Cristobal mine in Bolivia produced 67kt of zinc, an increase of 21% quarter on quarter. In 2016, AME believes the mine will produce 223kt of zinc, a rise of 28% over 2015.
  • Compania Minera Milpo‘s 180ktpa Cerro Lindo mine in Peru achieved a 16% quarter on quarter rise in zinc production to 46kt. AME estimates 2016 zinc production of the operation will be 176kt, in line with 2015.
  • Volcan’s 200ktpa Yauli Unit in Peru, produced 41.2kt in the quarter, a drop of 4.8% quarter on quarter. Over the remainder of 2016, AME expects throughput to rise at Yauli but the zinc head grade to remain the same, resulting in the mine producing 174kt of zinc in concentrate for the year, down just 1.2kt from 2015.
  • Glencore’s company-level reduction of zinc production continues to keep constrain output at its 383ktpa McArthur River and 500ktpa Mount Isa mines in Australia. During the September Quarter of 2016, zinc production totalled 48.1kt and 70.4kt, respectively, representing declines of 39% and 45% year on year. AME is not expecting the mines to resume full production before the September Quarter of 2017.

The increase in base metal prices and demand expectations dragged the LME lead price to an average of US$2,172/t (US$0.99/lb) in November 2016; its highest monthly average since February 2013. While lead has not seen the rate of price growth over 2016 of its sister metal zinc, lead price growth outpaced zinc during November. The lead price closed November at US$2,340/t (US$1.06/lb), 14% higher than at the end of October. Concentrate shortages and limited downstream production are expected to result in the lead price averaging US$1,826/t (US$0.83/lb) in 2016, before rising to US$1,984/t (US$0.90/lb) in 2017.