Torlizzi Base Metals Report: A quiet metal speaks up

Zinc hit a 10-year pricing high in mid-January 2018, causing a metal that by volume standards follows behind aluminum, copper and nickel to attract some attention.

To some extent, zinc has been riding a base metals price rally that many analysts see tied to a faltering U.S. dollar. Expectations in mid-January were that the weak dollar could cause the European Central Bank to start trimming its stimulus program, which subsequently lifted the euro to a three-year peak.

The dollar’s consequent weakness made assets priced in U.S. units, including zinc, cheaper for holders of other currencies.

“It is a dollar story [that] is behind this move,” says analyst Warren Patterson of ING. “If you look at the speculative position in the metals, there is potential for further upside if we continue to get positive economic data and strong manufacturing data.”

More tied to market fundamentals, Patterson adds that fears over potential supply shortages and another drop in on-warrant inventories available to the market are helping to support the price of zinc, used primarily to galvanize steel.

The analyst also comments that the nonferrous metals market had been disappointed not to have seen more zinc production capacity returning from Glencore, after the company curtailed 500,000 metric tons of annual capacity in late 2015.

In December 2017, however, Glencore announced plans to restart a mine in Australia in the first half of 2018. That “late” start will mean “at least for the first half of 2018, the zinc market is going to be fairly tight,” says Patterson.

In the ferrous market, domestic Chinese long product steel prices declined by six percent in the second week of January 2018 and have dropped 18 percent in a one-month period. Nonetheless, steel scrap prices in the region remain steady while iron ore prices have risen slightly in early January.

The ramping up of a 2-million-metric-tons-per-year stainless steel mill in China could put downward pressure on pricing in that sector. The new Tsingshan mill is projected to add to global stainless steelmaking capacity by five percent. Some analysts see higher supply from Tsingshan capping the upside in stainless steel prices in 2018 and 2019.

Commodities Pricing Trends

Jan. 15, 2018                       Jan. 1, 2017        % change

LME Copper                                     $7,206                                   $5,481                   +31.4%

SHFE Copper                                   $8,547                                   $6,813                   +25.4%

LME Aluminum                                 $2,226                                   $1,942                   +14.6%

LME Nickel                                       $12,865                                 $9,970                   +29.0%

LME Ferrous Scrap                           $371                                      $297                      +24.9%

SGX Iron Ore                                    $76.57                                   $74.01                   +3.4%

SHFE Rebar                                     $591                                  $434                       +36.2%

[Prices per metric ton.]