The London Metal Exchange three-month zinc price has rallied to levels representing a 21.1% rise year-to-date, based on the close August 22, and 28.5% from 2017 traded low of US$2,428/tonne recorded in June. Some other base metals also hit multiyear highs, but zinc was the standout performer, trading at a near ten-year high of US$3,181/tonne August 21. The previous peak in October 2007 predated the global financial crisis. We expect zinc prices to trade at even higher levels.
Recent price action and market sentiment, coupled with the overall improvement in fundamentals, have led us to raise our forecast annual average zinc prices for 2017, 2018 and 2019 by 6.7%, 14.7% and 20.4%, respectively. We now expect the LME three-month price to average US$2,915/tonne this year, rising to US$3,208/tonne in 2018, before easing only slightly to US$3,100/tonne in 2019.
Reassessing the market balance, S&P Global Market Intelligence has increased its refined metal deficits over the outlook period to 2019. Over the near term, although we forecast strong growth in mined production this year, notably outside China, we now expect global refined production to grow at a slower pace of 0.8% in 2017, primarily due to lower year-over-year output in China, Peru and Canada.
Furthermore, China's mined zinc production continues to be impacted by ongoing environmental scrutiny that has already shuttered many illegally functioning operations and reportedly slowed the coming onstream of new mining capacity. We have also ratcheted lower our 2017 global zinc consumption growth rate from 2.3% to 1.6%, largely accounted for by lower demand forecasts for the U.S. and China.
Zinc prices rallied throughout July, trading above US$2,800/tonne for most of the month, and beyond US$3,000/tonne in August. The increase was supported by a weak U.S. dollar, ongoing tensions between the U.S. and North Korea, and a robust Chinese steel market. These factors were supplemented by reports of robust global zinc demand, a tightening Chinese refined zinc market and shrinking global stock levels.
Market momentum was maintained as the steel-coating metal was supported by the latest round of LME cancellations. Net canceled warrant inventories rose by a total of 23,325 tonnes August 17 and 18. Although global refined zinc stocks have extended their downward trend, physical spot premia were steady to softer in July and early August, reflecting the seasonally quiet period for metals markets and still readily accessible refined metal supplies.
