Zinc is the fourth most used metal after iron, aluminum and copper. It has been in use since the 10th century BC in Judea. Its first appearance was in brass, which is an alloy of copper and zinc. Zinc is an essential mineral, which is of great importance in biology and public healthy. Reports have it that about two billion people in developing world and is associated with many diseases. This shows just how important zinc is to the world. Here, we’ll discuss the top factors that move the market price of zinc.
Well, the state of the economy affects just about anything. However, since zinc isn’t considered a safe asset, it is has a direct relationship with the economy. This means that in bad economies, the zinc market would find it difficult to perform. In fact, in most cases, a decline in zinc prices accompanies a decline in the state of the economy. The highlighted part of the chart above represents the last recession. And as we can see, the price of zinc went further lower during that period. In the same stead – albeit on the short-term – economic outlook affect the price of zinc. This is one of the things that can cause prices changes within trading sessions.
While an improving economy is also able to drive zinc prices up, the impact isn’t quite as huge as the impact of a declining economy. As the chart above shows, even after the recession, prices didn’t go up as high as it was before the recession.
LME zinc stock levels
Traders also want to know what’s happening to zinc stock levels monitored by the London Metal Exchange, or LME. Over the years, this has proven to be the biggest driver of zinc prices in recent times. The chart above makes it all clear. It shows that stock levels started dropping in 2006 until it reached a lowest point in 2007. This movement led to an almost equivalent increase in the price of zinc.
Here is another instance to support this point. Financial Times reported on July 14, 2014 that the price of zinc reached its highest level in about three years partly as a result of falling warehouse stocks. To confirm the close relationship between stock levels and the price of zinc, FT continued by acknowledging that stock levels had fallen to a three-and-a-half year low of about 660,000 tons before rising to the a three-year high. These instances tell us just how important LME stock levels are when predicting the price of zinc.
The demand outlook of zinc is also capable of moving zinc prices. Here you would want to focus on two main markets. The healthcare market is the first place to look. The second place to look includes industries where zinc is used as an anti-corrosion agent. As you might expect, predictions about high demands from these markets would push prices higher. On the other hand, predictions about low demand from these markets would push prices lower. These changes in price would be instigated by the fact that traders would make moves that allow them profit from the predictions. Demand outlook in certain geographic locations could also move zinc price. China, which would be covered below, is a good example.
The second factor that FT attributed rising zinc prices to in the story referenced above is supply outlook. The website says that a series of key mine closures is causing a structural change in the market. This means that a deficit is on the horizon. According to a Seeking Alpha article, the price of zinc is going to rise even higher because, “Australia's largest open-cut zinc mine Century Zinc will close in 2015 and another mine, Lisheen in Ireland, is also set to close next year .”
Apart from global supplies, you also want to consider supply outlook in countries that supply the most zinc. Here you want to check for supply outlook in Iran, Australia, Canada and US since they produce more zinc than other countries.
Demands from China
As with many industrial metals, China is the most important market for zinc, as the country is its top consumer. According to Financial Times, China accounts for more than half of global zinc consumption. This means that the demand outlook in China would always bear significant effect on the price of zinc. A good place to look for what China’s zinc demand outlook might be is China’s Purchasing Manager Index. Whenever it’s on the rise, analysts tend to predict that the demand for zinc would rise, which is likely to drive prices high.
In addition, you might want to take a look at China’s power consumption data. It is also an indicator regarding how much production China is doing. Besides, considering that zinc also finds its application in batteries, which quite contribute to power consumption, a bit more information regarding the demand outlook of zinc in china could be gotten here.
Demands from developing countries/emerging economies
There are a number of ways to look at this factor. Being an industrial metal, its demand outlook in emerging economies, like China and India, would normally move prices. This is because a growing economy is always accompanied by improved industrialization and urbanization. With these economies yet to reach their peak, there is a feeling that the demand for zinc, like any other industrial metal, is quite about the minimum possible. Therefore, as these economies become more industrialized and urbanized, the demand outlook in these economies improve, which could drive prices upward.
Here is the second way to consider this factor. If you’d refer to the start of the article, I said zinc is an “essential” mineral and that it is responsible for the death of several children in developing countries. With about two billion people in need of zinc in the developing world, you can expect that the demand for zinc in these regions would increase significantly going into the future. And this would work to push zinc prices higher.