After a ballistic missile-like climb this year, zinc prices finally felt some selling pressure in October. The metal declined 8% in just two weeks.
Why did prices fall this month? Is zinc’s bull run coming to an end?
Zinc rose pretty fast this year. Such was the rate of advance in prices that zinc only needed some news to be the trigger for what was always in the cards technically. Moreover, zinc is at levels that prices couldn’t overcome in 2014 and in 2015. This is a level where it’s normal to see some selling pressure. Finally, in October zinc got the news that triggered selling:
First, it was announced that the Antamina mine in Peru will double its zinc output to 350,000 metric tons next year. Second, Vedanta Resources said that production in one of its mines has increased and it will continue to increase in the second half. Third, Nyrstar recently announced the reactivation of three of its mines. These mines were put on care and maintenance when zinc prices were low and the company is now restarting them to take advantage of higher prices.
Are we heading back to surplus? Not really.
Actually, the first two developments were already on the table. The only one that came as anything close to a surprise was Nyrstar’s restart. These mines only generate around 50,000 mt of annual output and it will take over a year to fully restart them.
This volume is not that significant. However, these restarts bring up the fact that more production could come back now that prices are above $2,200/mt. Zinc bulls’ biggest fear is Glencore restarting its 500,000 mt of capacity that the company closed last year.
What This Means For Metal Buyers
Zinc prices are struggling to build on this year’s gains. This is normal price action after the huge advance seen this year. There is no reason to become bearish on zinc yet but buyers need to keep an eye on further mine restarts. Glencore restarting capacity is the biggest downside risk that the zinc industry faces.