Zinc & Lead
Trade Dispute Dampens Demand from Galvanisers
November 2018
Price growth over the year has been muted, particularly in the second half of 2018, driven chiefly by waning downstream demand from galvanisers, which stems from ongoing trade disputes between the US and its trading partners.

In 2019, a resolution of the trade wars is expected to lift zinc prices. However, price growth will be subdued because of additional concentrate supply from large-scale projects such as Glencore’s 500ktpa Mount Isa and smelters returning to action, including American Zinc Recycling’s 145ktpa Mooresboro (Horsehead).

Increasing concentrate supply from new projects such as Vedanta’s 250ktpa Gamsberg and New Century’s 270ktpa Century tailings processing operation will stymie any significant growth. The lack of movement can also be attributed to uncertainty over the impact of the escalating trade disputes between the US, China and other US trading partners. The potential for trade war resolution at the upcoming G20 summit provides the most significant upside potential for the zinc price over the December Quarter.

With China’s refined zinc output affected by Chinese National Holidays in October, the availability of the metal fell. This resulted in the zinc price rising to US$2,674/t (US$1.21/lb), 9.8% higher than September. However, the price started to fall late in the month as additional refined supply entered the market after the holidays and consumers adopted a wait-and-see attitude. The average three-month zinc future price was also up in October, rising 8.1% to US$2,633/t (US$1.19/lb).

The aforementioned Chinese holidays and the drop in Chinese output drastically affected LME Stocks. LME stocks declined 52kt in October to close the month at 151kt, which is 22% of the 2010–2017 average. Of the 52kt to leave the LME in October, 27kt came out of American Warehouses and 25kt came out of European Warehouses. Additionally, the drop may be attributable to lower output from major smelters in the quarter, including European smelter, Boliden.

With operations increasing concentrate shipments to China, i.e. New Century’s 270ktpa Century operation, treatment charges (TC) are starting to rise. Spot treatment charges (TCs) for imported zinc concentrate into China traded at US$110–120/t in October, the highest mark since the September Quarter of 2016. The influx of zinc concentrate into China has been substantial, with major producer Australia exporting 590kt of zinc concentrate to the country over the first nine months of 2018, an increase of 36% year on year.