Zinc prices continued to rebound strongly from the sub-US$2,500/tonne London Metal Exchange three-month lows seen in early to mid-June, with a nadir of US$2,428/t on June 7. Commodities generally, including zinc, subsequently found support from a weaker U.S. dollar. The LME three-month price traded up to a recent high of US$2,875 on July 12 before settling in a range of US$2,730/t to 2,850/t and is now nearer the lower end of that band. Supportive macroeconomic data from China and Europe and continued strength in the SHFE rebar contract also helped to underpin investor interest. Metals prices were most recently buoyed by a better-than-expected second-quarter China GDP figure of 6.9%, helped by a robust manufacturing sector.
Zinc stocks decreased further in June, with total exchange inventories (LME and SHFE) down 45% year over year in the first half of 2017. Most interestingly, regarding recent stock activity, was the reversal of 60,575 tonnes of canceled warrants in New Orleans in July — i.e. the metal going back on-warrant.
Despite a narrowing of the LME/SHFE arbitrage and rising zinc prices outside China, shipments of zinc ore and concentrates are expected to have held up well in June. As such, concentrate inventories at Chinese ports are reported to be higher than earlier in the year. This supports the recent rise in Chinese spot treatment charges for imported material, although values are still down year-to-date.
Smelters in Europe and North America are set to go on planned maintenance shutdowns in the coming weeks amid weaker seasonal activity. Over the past month, though, it has been "business as usual" for smelters fulfilling contract orders but also having some quantities of material available for spot sales.
Despite regional demand variations in the first half of this year, the global picture remains one of growth, in line with our full-year 2017 expectations. In China, the automotive sector, although weaker than last year, continued to be supportive to underlying zinc demand. We maintain our global zinc consumption forecast growth rate for 2017 of 2.3%, although weaker U.S. zinc demand from both the automotive and infrastructure sectors pose potential threats.
S&P Global Market Intelligence still expects the annual zinc price to average US$2,730/t in 2017, rising to US$2,796/t in 2018. We see risks weighted to the upside, especially if the stocks-to-consumption ratio tightens by more than expected.
