Zinc 2020 price forecast revised down over supply deficit – report
In its latest market outlook report, analysts at Fitch have revised down their 2020 zinc price forecast from $2,450/tonne to $2,250/tonne as an “amalgam of market forces,” put in motion by the Covid-19 outbreak, weighs on prices in the short term.
Since prices peaked in January at $2,454/tonne following the signing of the Phase one trade deal between the US and China, zinc prices have cratered below the $2,000/tonne mark on the London Metal Exchange.
Over the recent weeks, zinc prices were pressured lower as the ongoing coronavirus outbreak led to numerous factory shutdowns in China and quarantines across the globe. With demand constrained, zinc inventories have increased significantly, resulting in lowered optimism from market participants, as evidenced by the decreasing net speculative position amongst traders on the LME.
As such, Fitch expects prices to remain subdued in the coming weeks as nations worldwide continue to grapple with how to best contain the spread of the virus while minimizing the impact on their domestic economies.
Zinc producers have already begun taking precautionary steps in face of the global spread of the novel virus. Earlier, Canada’s Lundin Mining put a temporarily halt on expansion activities at its Neves-Corvo zinc operations in Portugal.
However, Fitch analysts foresee the zinc market to improve later this year, under the assumption that the economic activity in China ramps up fully in the second half.
The Chinese government had extended Lunar New Year factory shutdowns in efforts to contain the spread of Covid-19, as well as locking down some of the largest and most economically significant cities where steel smelters are located such as Tangshan, the largest steelmaking hub in China.
Currently, it is reported that the number of new coronavirus cases has been tapering off in China, leading to a relaxation of city-level lockdowns, and workers are starting to return to work, which should bode well for economic activity.
As factories resume operations and construction activities pick up, Fitch believes this will lead to increasing demand for raw materials such as steel, and thus filter into higher demand for zinc over the coming quarters. Development should gradually lead traders back to their more bullish position, providing some additional support to prices as well.
Nevertheless, Fitch analysts expect prices to average lower in 2020 closer to $2,250/tonne, compared to the 2019 average of $2,507/tonne.