A season of stability is in the air for the rest of 2023, but the future for zinc is uncertain.
Short-term outlook
According to BMI, Fitch Solutions’ industry research body, zinc prices should remain relatively stable over the coming months, as gradually improving mined and refined output helps to reduce market tightness.
BMI’s forecast prices to average US$2550 per tonne over 2023, which implies prices averaging US$2212 per tonne over September–December.
The market is certainly well supplied, with a surge in London Metal Exchange (LME) zinc stockpiles since the start of August, following a dip to the lowest levels seen in a decade throughout the first half of the year.
The inflow of metal from non-LME stockpiles coincided with a brief period of market tightness when the LME market shifted into backwardation and immediate deliveries of zinc earned a price premium.
The BMI expects the significant zinc supply available in the wider market will flow into the LME system in the event of periodic market squeezes, capping price gains.
Demand growth in mainland China, which accounts for about half of annual zinc consumption, is anticipated to be lacklustre, with its manufacturing PMI still contracting despite a slight rise in August.
On the supply side, there are tentative signs that European smelters could begin increasing production again in 2023.
Long-term outlook
BMI’s forecast beyond 2023 sees trouble for zinc prices, with an expected average US$2150 per tonne from 2024 through to 2027.
This is attributed to a predicted oversupply of zinc in the coming years which is expected to peak at surplus of 530,000 tonnes in 2026.
The downward pressure on prices is seen to be a result of weak demand, rather than strong production, with China attempting to shrink its bloated property sector over the next decade.
Steel production growth in China, the main end-use for zinc, is set to slow from an annual average of 4.3 per cent over 2018–2022 to just 0.1 per cent over 2023–2032.
However, the BMI has said it is possible China could enact a more substantial economic stimulus package for the property sector than currently expected, spelling a not so grim future for zinc.