Two-faced zinc price forecasts – bored, beaming
Divergent views of the zinc market drive widely different forecasts on prices in a couple years time. We dig into the details.
Posted: Wednesday , 23 Oct 2013
HALIFAX, NS (MINEWEB) -
We're not talking about a matter of a couple pennies. One camp has it zinc prices will near double within the next few years while the other maintains it will merely plod along.
Take recent forecasts from Citigroup and Credit Suisse. Citi sees zinc at 84 cents a pound next year, 93 cents in 2015 and 95 cents for the longterm. Credit Suisse takes a similar view. It pegs zinc at 80 cents in 2014, 85 cents in 2015, 90 cents in 2016 and 85 cents in the longterm.
Nothing to get much excited about in those prices – much the same as today – especially if you're looking to make investments in zinc associated equities or actual projects.
But then there are serious zinc bulls. Scotiabank's Patricia Mohr, a commodities analyst who oversees the Scotiabank Commodity Price Index, sees zinc hitting $1.50 a pound 2015-2016. It's a long-standing view of hers that she re-iterated in an email to Mineweb today. Likewise Wood Mackenzie, a consulting and research group, pegs zinc over $1.50 per pound between 2016-2018, according to a well-sourced article in the Financial Times about zinc.
So the gap between zinc targets a couple years away is wide: near double recent prices for bulls and largely the same as today for bears.
It's a question of differing views of zinc mine closures and projected zinc mine openings, alongside forecasts of how well the global economy will fare in the years to come, in particular in China and G7 countries.
Mine closures and changing project timelines or lack thereof, while not the only parameters in the equation behind zinc price forecasts, are decidely important ones.
Citi hinted at its view late last year in the title to a zinc chapter within a metals research report: Zinc – tightness, what tightness? While a Citi analyst who helped pen the report did not respond to a request for comment, Citi's position on mine supply was nonetheless pretty clear in a subsequent subheading: Zinc – no shortage of mine supply.
“On the mine supply side, the bullish narrative for zinc in the form of ore depletion at larger older mining complexes continues to be pushed forward into the future,” Citi analysts write. “Given recent announcements over the Century mine in Australia, with Minmetals further extending mine life into 2016 and perhaps beyond, plus the probable development of other Minmetals projects, Dugald River and Izok Corridor, life of mine extensions at Skorpion in Namibia, and continued Chinese mine supply growth, there appears to be little prospect of a significant tightening of the zinc market until 2018 at the earliest.”
Citi here gets to a core part of the mine debate. Will mines go bad on their current expiry dates or will producers be able to milk them for more zinc? Some analysts, including those at Citi, wonder if Minmetals will add life to Century with additional resources thus extending production, for instance. And China: How will its zinc production respond to a possible rise in zinc prices? Citi and other analysts see its output as fairly flexible, which could keep prices in check.
On the other hand, Scotiabank's Mohr expects mine supply to wither, in part helping to boost prices.
“I expect tight market conditions for zinc beginning around 2015 and especially in 2016, due to mine depletion, a continued lower level of smelter utilization in China, due to high costs at outdated smelters, and a rebound in world demand with better construction activity in G7 countries,” Mohr writes in an email on Wednesday. “Both refined zinc and concentrate supplies could be in ‘deficit’ by 2016. LME prices for refined zinc could climb to US$1.50 per pound in 2015-16 from ($0.88) today.” She adds, “Zinc prices have held up relatively well this year.”
It won't be long before we know who's forecast is best. This week, though, score one for the bullish zinc team. Minmetals said late last week it would delay its Dugald River zinc project. Dugald River had been expected to come online in 2015 with production projected around 200,000 tonnes a year. It's output will surely be missed.
Though not so much it necessarily sinks the bearish case for zinc.