Global zinc oversupply will depress prices

Subject

Zinc market balance disappoints optimists.

Significance

Zinc, long viewed as a defensive investment in a stumbling metal universe, has failed to outperform other industrial commodities in 2015. Its price has dropped 29.4% year-to-date, a return worse than copper and aluminium. At 0.58 million metric tonnes (mmt), London Metal Exchange (LME) inventories are close to record highs and slow economic growth prospects in emerging countries keep the near-term consumption outlook soft.

Impacts

• Chinese zinc importers will remain hampered by tight domestic credit and anticipation of further currency weakness.
• Attractiveness of import financing is undermined by the shrinking spread between Chinese and US interest rates.
• A wave of strikes in Peru, the world's third-largest zinc producer, will affect metal production in several provinces.