Zinc & Lead June 2017
Stock levels fall, Prices remain flat

LME zinc price averaged US$2,587/t (US$1.19/lb) in May, a marginal decline of 1% from April. LME zinc stocks have fallen by 18kt to 331kt, which is the lowest level since 2009 and the LME lead price has declined 4% in May to average US$2,125/t (US$0.96/lb).

LME zinc stock levels are falling, but the zinc price remains little changed. The LME zinc cash price closed May 2017 at US$2,587/t (US$1.17/lb), 1.2% below the April close. While the zinc market has some of the strongest fundamentals in the base metals sector, it appears the price is being held back by a general concern as to whether China’s demand remains sustainable. This concern is being reflected in LME zinc money manager positions, where zinc short positions are on the rise. Despite this, AME believes a refined zinc supply shortfall in 2017 will soon start to bite, resulting in the 2017 LME zinc price averaging US$2,800/t (US$1.27/lb), a 34% increase over the 2016 average.

How low can stocks go? LME zinc stocks closed May 5% lower for the month at 331kt. Inventories did see a minor period of restocking in mid-May but the general downward trend continued. LME stocks are now at the lowest level since May 2009. Zinc stocks continue to flow out of the SHFE. SHFE deliverable zinc stocks closed May at 78kt, 32% lower than the previous month. 

In May 2017, spot treatment charges in China for imported concentrate averaged US$44/t, an increase of 26% on the April average. While this remains well below the 2017 benchmark zinc treatment charge of US$172/t, it does signal a change. AME believes the rise is the result in a drop in Chinese smelter demand for concentrate as a number of smelters completed maintenance and concentrate output rose with mines coming out of winter and the holiday period.

AME’s refined zinc market balance forecast has been revised. With the ongoing release of data from the first quarter, AME has increased its expected 2017 refined market deficit by 100kt. We now forecast a deficit of 320kt. The increase in the deficit is the result of ongoing strikes at Noranda Income Fund’s 298ktpa Canadian Electrolytic Zinc (CEZ) smelter and lower than expected Chinese production in April.

The LME lead cash price closed May at US$2,099/t (US$0.95/lb), 8% below the April close. LME lead stocks rose 10% to 181kt. As of the 26th of May, deliverable SHFE lead stocks totalled 83kt, 15% higher than a month prior. AME believes the falling lead price and rising stocks is the result of higher Chinese metal production.  According to the Chinese National Bureau of Statistics, China produced 1.68Mt of refined lead over the first four months of 2017, 9.3% higher than the comparable period in 2016. While lead production is on the rise, AME believes an increase in demand for lead-acid batteries will help keep LME lead prices higher in 2017.