Zinc prices extend decline on weak demand, rising supply

Zinc prices extend decline on weak demand, rising supply

Zinc prices registered a significant drop of 2 per cent overnight, reflecting a continuing downward trend. The decline in zinc prices can be attributed to weak demand, coupled with an increase in smelter supply. The profitability of mines too has suffered, particularly due to sluggishness in the steel sector, which has impacted the demand for galvanizing.

On a monthly basis, prices have fallen by 2.5%, while the year-till-date decline stands at a substantial 34%. In March 2022, zinc was valued at $4896 per tonne, but by May 2023, the price had plummeted to $2215. The prices have recovered slightly in June to $2370.

In response to these challenges, Swedish producer Boliden has decided to to halt operations at its Irish facilities, including the Tara Zinc mine, as the mine's cash flow turned negative. The closure of the mine is also adding to the strain on zinc supply.

Furthermore, smelters have been charging miners higher fees, as evidenced by the global treatment charges. This year, these charges rose to $274 per tonne compared to $230 in 2022.

Interestingly, China has been increasing its import of zinc concentrates, with a rise of 13% in 2022 and a further 21% growth reported thus far in 2023. This suggests that China is actively stockpiling zinc reserves.

Money managers have taken note of the situation, as reflected in the significant number of LME zinc shorts, which currently stands at 10,295 contracts. This indicates a bearish sentiment towards zinc in the market.