The zinc market is experiencing a significant shift as the second European smelter comes out of care and maintenance this year, following Glencore’s re-firing of its Nordenham smelter in Germany. The news has not disrupted the market, with London Metal Exchange (LME) three-month metal hitting a 13-month high and currently trading just under that peak.
The dynamics of the zinc market have evolved, with focus moving from smelter constraints to mine supply issues. Smelter treatment charges have plummeted, indicating a squeeze on mined concentrate availability. Global mine output has been on the decline for the past two years, leading to a tighter market than initially expected.
However, the International Lead and Zinc Study Group (ILZSG) anticipates a marginal improvement in mine supply this year, largely driven by the ramp-up of the Kipushi mine in the Democratic Republic of Congo. Despite this, constrained raw material supply will hinder refined production growth, resulting in a minor increase in metal supply.
The sharp downgrade in global output has prompted ILZSG to slash its projected supply surplus for 2024. This adjustment aligns with forecasts from the International Copper Study Group but highlights a key difference in the reasons behind mine shutdowns for the two metals.
While copper mines faced operational challenges, most zinc mines closed due to price fluctuations. The recent price rally has revived the possibility of mine restarts, as prices now trade well above production costs. For instance, Boliden is in talks to resume operations at its Tara mine in Ireland following a year of inactivity.
As the zinc market undergoes rapid changes, investment fund positioning on the LME zinc contract has shifted. Funds were previously net short on zinc but have now turned net long, reflecting growing optimism in the market. The fluid nature of zinc fundamentals and investor sentiment suggest a potentially volatile yet promising future for the metal.
