Lmeweek: Zinc supply fears ousted by demand headwinds

Nyrstar NV

27/10/2022 14:37

By Pratima Desai
       LONDON, Oct 27 (Reuters) - Production cuts in Europe
because of the energy crisis and low inventories have sustained
zinc prices over the last year, but headwinds emanating from
growth and demand slowdown are now a bigger challenge for the
market.
    The latest on production cuts comes from Glencore  GLEN.L ,
which plans to close its Nordenham zinc smelter in Germany from
Nov. 2. The London-listed miner put its Portovesme zinc
operation in Italy on care and maintenance last November.
    Belgium-based Nyrstar  NYR.BR  also shut its Budel smelter
in the Netherlands in September.
    Worries about tight supplies took zinc  CMZN3  to a record
$4,896 a tonne in March, but since then interest rate hikes and
recession fears have pushed prices back below $3,000 a tonne.
    "Zinc has been relatively resilient because of ongoing
concerns over production losses, particularly in Europe.
Portovesme and Budel account for a meaningful 3.5% of global
supply," said Bank of America analyst Michael Widmer.
    Widmer estimates global zinc production at 14.3 million
tonnes this year and forecasts a small deficit of 27,000 tonnes.
    About 60% of global zinc production is used to galvanise
steel.
    "Global galvanised shipments/production have declined year
to date," Widmer said. "Against this backdrop, we are concerned
that prices could face further headwinds into winter."
    Zinc stocks in London Metal Exchange(LME) registered
 MZNSTX-TOTAL  warehouses are at 32-year lows of 48,175 tonnes,
while cancelled warrants -- metal earmarked for delivery -- at 
52% suggest another 25,050 tonnes is due to leave the system. 
    However, the trend of falling stocks in warehouses monitored
by the Shanghai Futures Exchange seems to have stalled. At
57,741 tonnes, they have climbed more than 50% since the end of
September. 
    Hopes of a demand recovery in top consumer China have been
disappointed. China's unwrought zinc imports at 106,645 tonnes
between January and September this year are down 75% from the
same period in 2021, according to Trade Data Monitor.
    Analysts at Macquarie say China normally imports zinc, "but
so far this year it has been a net exporter".
    "The deteriorating economic outlook for the U.S. and Europe
will dominate the narrative from 2023...we now have a more
bearish price outlook in the medium term."
    Macquarie expects to see zinc market surpluses from 2023 to 
2026.
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Zinc market balance    https://tmsnrt.rs/3DBV5zr
LME zinc stocks    https://tmsnrt.rs/3NaybCd
Zinc prices    https://tmsnrt.rs/3sAsCUs
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 (Reporting by Pratima Desai; editing by Kirsten Donovan)
 ((pratima.desai@thomsonreuters.com; +44 207 513 5681;))