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Zinc

Zinc Market

Zinc Price Trends and Forecast

Following the results of 2020, the average LME price for zinc has fallen by 11% to $2,267/t compared to 2019. However, the quotes recovered to the pre-pandemic level. Q4 2020 saw the annual maximum. The metal price in December exceeded $2,800/t. The news about the development of a vaccine against COVID-19 and the US dollar decline against the world’s major currencies contributed to such a dynamic growth in quotations. Among the fundamental factors, the high economic activities in China had a beneficial impact on the zinc price. Positive industrial statistics show a continued high demand for the metal in the country. The Caixin China General Manufacturing PMI was at 53.0 in December 2020, this indicator has been growing for the 10th months in a row. In addition, according to the data of The China Association of Automobile manufacturers (CAAM), automobile production output in the country in December 2020 amounted to 2.84mln units, which is 5.7% more than in 2019. Nevertheless, at the year-end 2020 the production fell by 2% to 25.2mln vehicles.

The situation on the world market of zinc concentrate worsened at the end of 2020. The supply from zinc mines in Bolivia and Peru declined due to forced shutdowns caused by newly introduced "lockdowns". In South Africa, the Gamsberg mine (250kt, Vedanta) suspended operation due to an accident at the mine. In China, the supply of local mines narrowed down with the onset of winter. Chinese zinc smelters had to increase import procurements. Between January and November 2020, zinc concentrate import to China boosted by 23% (YoY) and reached 1.7Mt (in terms of metal). Eventually, the shortage of the raw materials in the market affected the cost of its treatment. At the end of December 2020, the average TC rates (spot zinc concentrate TC, cif China) lowered to $82.5/t (-72% compared to January 2020). Currently the annual benchmark TC has not been set between zinc smelters and mining companies. Forecasts say that in 2021 benchmark TC will comprise $190-200 per ton, however taking into account the current market environment this indicator may be much lower than the expected level. To rely on the benchmark TC in this situation becomes less appropriate for some companies, as they more frequently resort to spot market signing floating rates contracts

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Average LME zinc stocks at year-end 2020 were at the level of 145kt, which is 7% higher than in 2019. However, since April we have been witnessing both the rise in stocks and the rise in quotes. Thus, the increased stocks did not have a strong impact on the changes in quotes in the reviewed period.

Factors with a positive impact on zinc price:

- Disruptions to global zinc concentrate supplies since COVID-19 pandemic has caused shutdowns of major zinc mines;

- Shutdowns and interrupted operations of mines in different countries;

- Recovery of the world economy growth due to implementation of business incentive programmes in different countries;

- The weakening of the US dollar against major world currencies.

Factors with a negative impact on zinc price:

- Global market, turning shortage into surplus. In 2020, zinc surplus in the global market may amount to 600kt;

- Existence of “invisible” metal stocks in the stock exchange warehouses;

- Production restart in the largest zinc mines in Peru, Mexico, and Bolivia etc;

- Slowdown in economies’ upturn of some developed and developing countries as the result of trade wars and new “lockdowns” inflicted by COVID-19.

High volatility of quotes will continue in 2021 due to uncertainty about the rate of economic recovery in the United States and Europe, as more and more European countries are forced to introduce “lockdowns” against another increase in the number of the infected with Covid-19.

In the long run, we expect global economy to continue its recovery outside China with COVID‑19 vaccination expanding and with introduction of governmental support measures, which will have a positive effect on zinc demand and its quotes. Forecasts say that in 2021-2025 the average zinc price will vary from $2,500 to $2,900 per ton.

In 2024, production at the existing mines may reach peak values exceeding 14Mt, however following that the period of recession may be expected due to deterioration of ore quality and shutdowns of a number of mines when mine life comes to an end. The projects related to the expansion of the mining resources will not be able to meet the growing raw materials demand of zinc smelters. New projects will be launched with delay as their implementation was suspended due to periods of low prices. At the same time, projected zinc base price used to assess their economic viability is appr.  $2,668/t.

Thus, in the period from 2025 through 2030, the market may face a significant shortage of zinc concentrate, and in order to achieve a market balance, the fair price of zinc must be at least $2,600 per ton.

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Global Zinc Market Indicators and Forecasts

Following the results of eleven months of 2020, global zinc market was 469kt oversupplied.

As of year-end 2020, 620kt surplus is predicted, which will be reduced to 470kt in 2021.  

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Zinc Mining

Following the results of eleven months of 2020, global zinc mine output added up to 11.1Mt, which is 5% lower than in the same period of 2019. COVID-19 pandemic, which began in February 2020, has caused significant contraction of mining and quantity of raw materials to be delivered to zinc smelters around the world. Mine output reduced drastically in Latin America countries, which are the largest exporters as well. In Bolivia, zinc mine production plummeted by 31% to 329kt and in Peru by 7% to 1,178kt. In China, it dropped by 2% to 3.8Mt and is expected to stagnate due to resource depletion and environmental restrictions. 

Starting from May 2020, after easing the main quarantine restrictions, global mining moved towards gradual recovery. In September, mine output reached the level of 2019. 

As of end-year 2020, Glencore was capable of ramping up zinc concentrates output by 10.8% (g/g) to 1Mt[1] due to higher zinc content in ores of Antamina mine and production rise in South America owing to Iscaycruz Mine restart in Peru. 

Canadian Teck Resources slashed zinc concentrate output by 13% to 313kt due to a decrease in ore processing at Peruvian mines caused by temporary shutdowns on the back of COVID-19 quarantine. 

By late 2020, global mining is expected to decrease by 4.4% to 12.33Mt. Mine output will decline in China, Finland, Kazakhstan, Sweden and Turkey. Growth is expected in Australia, South Africa and India, where Hindustan Zinc has recently completed some mine expansions. 

The accident at Gamsberg (South Africa) that occurred in November 2020 (Vedanta Zinc International, 250 kt), actually, would have little impact on global mine output. In Q4 2020, total zinc concentrate loss can amount to about 15kt, and in Q1 2021, to around 30kt.
In 2021, output is projected to increase to 13.14Mt (+ 6.6% from 2020). At the same time, high mining risks still exist due to possible new lockdowns, as the situation with COVID-19 remains tense. 

Large exporters of zinc concentrate from Peru and Australia will continue to ramp up their supplies of zinc concentrate to the world market. In Peru, Tinka Resources plans to launch the Ayawilca Mine (140,000tpy of zinc concentrate) in 2023. In Australia, a number of zinc projects are at various stages, if implemented, the country's zinc concentrate output may increase from 1.4Mt to 1.6Mt.

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Zinc Production

Zinc production was almost at the same level as in the previous year. Based on the results of 11 months of 2020, the global indicator was up by 1.1% and amounted to 12.4Mt, mainly due to growth in China (+ 2.5% to 5.7Mt). Production output ramped up even more in Australia (up to 426kt, + 8.8%), France (up to 152kt, + 18.4%), the USA (up to 140kt, + 33%)

By the end of 2020, Glencore had cut down zinc production at Kazzinc[2] (Kazakhstan) by 3% to 168kt as a result of low mining at Tishinsky mine. Production at controlled metallurgical plants (with 100% ownership share) decreased by 2% to 787kt.

India's Hindustan Zinc produced 692kt of zinc that is almost the same quantity as in 2019.

In 2020, global zinc production will be on the climb by 0.9% to 13.60Mt.  China’s production will show the 1.6% growth. Production is expected to rise in Australia, Canada, India and the United States.

In 2021, production is expected up by 2.9% to 13.99Mt. Chinese zinc smelters  will continue to raise production due to good domestic demand. At the same time, the smelters will need more imported raw materials (zinc concentrate) because domestic production is declining and will be maintained at current levels in the future.

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Zinc Consumption

By the end of 11 months of 2020, zinc consumption fell by 5% to 11.9Mt. Covid-19 pandemic affected most countries, but despite this fact, China was capable of recovering its consumption by 1.1% to 6.1Mt. In October, global zinc consumption reached the level of 2019, which is indicative of demand recovery. At the end of Q4 2020, economic activity both in China and outside boosted. American Purchasing Managers Index (PMI) rose to 60.7 in December from 57.5 in November. Eurozone PMI came up to 55.2 in December from 53.8 in November (the highest value since May 2018).

In 2020, zinc consumption in Europe declined by 7%, but in 2021 the market is expected to recover, and zinc consumption may rise by 6.5%.

In general, global zinc consumption in 2021 will grow by 4.2% to 13.52Mt.

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Key Russian Market Indicators

According to the Federal State Statistics Service, metallurgical production index following the end of 2020 fell by 2.4% compared with 2019. The period under review resulted in zinc output increase by 3.7%.

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Following the results of 2020, Russian zinc production went up by 2% to 211.8kt compared with 2019. Russia’s share in global zinc production (including zinc-aluminum alloys) stood at 1.6%.

Over the period under review, zinc imports shrunk by 30% to 34.9kt. The bulk of zinc is imported from Kazakhstan (81% of total imports) and Uzbekistan (17%). During the period under review, zinc supplies from Kazakhstan and Uzbekistan diminished by 25% to 28.2kt and by 14% to 6.1kt, correspondingly. A fall in imports is attributed to contraction of zinc supplies to Novolipetsk Steel (NLMK) from Kazakhstan (up to 17.5kt, -50% YoY).

Zinc exports more than doubled and amounted to 14.7kt. Most deliveries were made to the Netherlands (57% of total exports) and Spain (34%).

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Following the end of 2020, apparent zinc consumption tumbled by 7% and totalled up 232kt. The share of imported zinc in the consumption structure slumped from 20% to 15%.

In late 2020, the rates of decline in apparent zinc consumption slackened due to production recovery from primary consuming industries.

Major metallurgical companies, except MMK, succeeded in ramping up their sales of galvanized flat products. However, 2020 resulted in total sales of flat products by three major companies (MMK, NLMK, Severstal) being contracted by 1% to 2,967Mt.

According to the Federal State Statistics Service, over the period under review production volumes in certain segments (including galvanized products) “Ferrous metalwork and its parts” moved 0.5% upwards. Having said that, a downward trend is seen in “Ferrous or copper wire cloth, screens, meshes and fences” segment (by 3.6%) and "Motor vehicles, trailers and semitrailers" group (by 12.7%). Construction sector showed signs of falling by 4.7%, and residential and non-residential buildings demonstrated a 12.2% decrease in commissioning. “Production of chemicals and chemical products” group (which primarily uses zinc powder) nosed up by 7.2%.

Between 2021 and 2023, we expect a gradual market recovery. An on-going countrywide vaccine campaign will allow mitigating the risks associated with new containment measures taken to tackle the spread of the coronavirus. As business and investment activities continue to augment, zinc consumption will hit pre-pandemic level of 250kt.  

Main industrial zinc consuming sectors (“Galvanized steel rolled products” and “Hot-dip galvanizing of metalwork”) have in-progress projects. In December 2020, Ural Hot-Dip Galvanizing Plant (Polevskoy, Sverdlovsk region) launched a new facility with performance capacity of 12 thousand hot-dip galvanized metalwork per annum. Estimated zinc demand will account to about 600 tons. In February 2021, NLMK-Metiz sets out to put a new wire galvanizing line into operation (Berezovsky, Sverdlovsk region). The project will eventuate in galvanized wire output being expanded by 40 % (by around 15-20kt). Estimated zinc demand will stand at about 300 tons. Agrisovgaz is also implementing a programme to increase production capacities of galvanized metalwork for outdoor lighting and road building.

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[1] Excl.Kazzinc

[2] Kazzinc production indicators are given in accordance with Glencore’s ownership ratio. Total zinc production at Kazzinc over 9 months of 2020 amounted to 223kt (+3% compared with the same period in 2019).