Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Demand and price outlook for zinc and other industrial metals seems adverse considering the increase in the COVID-19 cases across the globe, says Yash Sawant, Research Associate at Angel Broking. Amid a surplus of zinc, prices are expected to move lower towards Rs200,000/mt ($2,721/mt) in a month. In India, prices of zinc alloys including Zamak and zinc galvanizer’s dross are usually derived from the prices of primary zinc.


He states that China’s steel demand is expected to slow in the coming months as downstream sectors limiting their operational activities in winter. The slowdown could also pull down demand for the galvanizing metal. But with various central banks coming to aid economies and hopes of further stimulus infusion, along with a potential vaccine for COVID-19, there is a ray of hope for industrial metals. 


Zinc prices globally have jumped 20pc since October to $2,800/mt levels as of mid-December and over 17pc on India’s MCX. Disruption in mining activities and strong demand has helped the metal prices overcome the COVID-19 related hurdles. India’s demand for zinc grew steadily, driven by the infrastructure companies, which also purchase galvanized steel. Market participants shared with Davis Index that demand has been gradually growing for zinc over the last few months, with a bearing on prices.  


Global prices went up recently after Joe Biden claimed victory in the US presidential election. They were also supported with the new COVID-19 vaccine showing promise, Sawant states. 


Mining disruptions

Price rally was supported by sliding mine output, majorly from South America. As per the International Lead and Zinc Story Group (ILZSG), global zinc production is expected to dip by 4.4pc in 2020 due to the halt in mining activities in key producing nations such as Peru, Bolivia, and Mexico. Mine supply was further threatened after the temporary closure of Gamsberg Mine with an annual capacity of 250,000mt as a geotechnical failure trapped a few of their employees, noted Sawant.

Despite the evident supply crunch this year, ILZSG suggests that the global zinc market might witness a surplus of 620,000mt in 2020. 


Potential hurdles going ahead

The second wave of COVID-19 and related lockdowns have turned market participants cautious. Lockdown in March had already led to a slump in production activities of major industrial metals consuming sectors, including automobiles and construction. Thus, elevated zinc inventory levels at LME warehouses are worrisome, says Sawant. After hitting a multi-year low on Feb 20, with 49,625mt, zinc inventories rose by 350pc in nine months. In mid-December, LME zinc inventories were around 214,875mt. 


Market participants believe that there is a potential for zinc demand to grow, but the uncertainty amid possible lockdowns could deter recovery. Also, the holiday season is about to begin which seasonally leads to lower trades and prices falling as production units take a break. Prices might lower marginally in the coming weeks. 



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