By Mr. Yash Sawant Research
Zinc Rallies, an article by, Angel Broking Ltd
Zinc rallies
Zinc prices soared about 20 percent on the LME and over 17 percent on the MCX sinceOctober’20 as disrupted mining activities and a robust demand narrative helped the galvanizing metal pave its way through all the global worries.
The demand for Zinc also witnessed a steady growth in India, majorly from the infrastructure and steel producing companies.
The recent rally in the base metal spectrum was charged by the optimism infused post Joe Biden’s victory in the U.S. Presidential elections and hopes over a potential vaccine against the covid19 virus.
After Pfizer Inc, Moderna and Astrazeneca has also claimed to make progress with its vaccine which further boosted hopes of betterment in the global economic scenario and improved the outlook for the industrial metals.
Mining disruptions
Sliding mine output, majorly from South America, has been one of the prime reasons behind the eye catching rally in Zinc. As per the International Lead and Zinc Story Group (ILZSG), Global Zinc Mine production is expected to dip by 4.4 percent in 2020 reflecting the halt in mining activities in key producing nations such as Peru, Bolivia and Mexico.
Mine supply was further threatened after the temporary closure of Gamsberg Mine (annual capacity of 250,000 tonnes) as a geotechnical failure trapped a few of their employees.
Even the Treatment charges for Zinc concentrate in China slipped below $100 per tonne i.e.over 40 percent below the range that prevailed in the end of August’20. Lower availability of ores due to the pandemic triggered curbs and growing demand from global smelter forced operators to trim the charges.
Despite the evident supply crunch, reports from ILZSG suggest that global Zinc market might witness a surplus of 620,000 tonnes in 2020. That, coupled with no signs of enormous purchases by China (unlike for Copper & Aluminium) raised chances of hidden Zinc stocks which has left the investors cautious.
The second wave
While the markets cheered on China’s stellar recovery and increasing bets on additional stimulus infusion in the above mentioned time frame; global economic worries further deepened. Markets turned cautious after many nations reinforced strict curbs after record number of new coronavirus infected cases were reported. The global number of cases have surpassed 71.7million with a death toll of over 1.59 million.
After the nationwide lockdowns were imposed earlier in March’20, operational activities at the global automobile and the construction industries, the major consumers of the industrial metals, were ground to a near standstill. Resurgence of the virus and nations enforcing new lockdowns might further dampen the global economic outlook.
The virus worries are accompanied by higher inventory levels at the LME warehouses. After hitting a multi-year low in February’20 (49,625 tonnes), Zinc inventories soared about 350 percent in a span of nine months. (Zinc LME inventories stood at 2,14,875 tonnes as on 12th December’20)
Outlook
The outlook for Zinc and other industrial metals seems to be adverse considering the alarming increase in the covid19 cases around the globe.
Even China’s steel demand is expected to stall in the coming months as downstream sectors tend to limit their operational activities in winter which might also pressurize the galvanizing metal, Zinc.
However, considering the widening impact of this implacable pandemic, global central banks are coming back into action. Hopes over further stimulus infusion and a potential vaccine after a yearlong battle might act as a ray of hope for the industrial metal going ahead.
Considering the wide spread of the virus amid surplus worries, we expect Zinc prices to move lower towards Rs.200 per kg (CMP : Rs.216.4) in a month time frame.
Prittle Prattle News in conversation with Mr. Yash Sawant Research Research Associate, Angel Broking Ltd by sharing a Press Release
