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Supply to ease, Demand muted
Lower exchange inventory levels and a prevalent global supply deficit continue to underpin LME Zinc prices, however, rising mine output will eventually ease tightness in the refined markets. Further acceleration in mine supply will be driven by restart of mines and new capacity. Higher treatment and refining charges (due to abundance of concentrates) will likely reverse the curtailment in the Chinese smelting output, resulting into stronger refined output over the later part of this year. Although LME stockpiles are at a multi-year low, inventories during April and May have started moving higher. Similarly, SHFE stockpiles have swelled this year.
On demand, refined zinc consumption has declined due to profound slowdown in Chinese galvanized steel market and slower growth in Europe. We sense that the global deficit will narrow this year and probably be in a surplus next year given our view of higher mine and refined output accompanied with muted demand projections. We see LME Zinc prices falling to US$2,300-2,400/ton by the end of 2019. Concentrates to feed into refined supply Zinc concentrate mine supply is steadily increasing, manifested by relatively high treatment charges. As a case in point, WBMS figures cite global mine supply to have risen by 11% during the first 2 months of this year. Glencore sees its production rising by 28% between 2018 and 2021, while in 2019, it sees output reaching 1.2mn tons, about 100,000 tons more than 2018 levels.
Even China could see its output rebound after dipping last year due to longer maintenance periods at smelters and the relocation of the country's top zinc facility (the Zhuzhou Smelter) to another part of the country. Chinese smelters are getting back into business given the lure of treatment charges and therefore more refined metal will come on line as a result. A flood of concentrates coupled with Chinese smelting bottlenecks (due to antipollution measures) has persuaded smelters to hike their fees. Inventory replenishment will likely prevail over the second half of 2019.
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