LEAD & ZINC CONF: ‘This will be the best zinc price for years, bull markets like this don’t last’ – Layton

The zinc price seen over the next few months will be the best zinc price for three to five years, a panelist said at Metal Bulletin’s Lead and Zinc conference in London on Thursday March 22.

“The headline is about how the zinc price you will see over the next three to six months is the best zinc price you will see for the next three to five years,” Max Layton, managing director and head of commodities research at Citi Group, said.

“Bull markets like this zinc one, historically, do not last, and I think we’ll hear more throughout the conference – people saying this one will not last,” he added.
The London Metal Exchange three-month zinc price rose by 29.1% in 2017 and hit a fresh ten-year high.

The metal was trading at a high of $3,595 per tonne in February, its highest level since July 2007, but is currently down to a three-month low.

“By 2019-2020, we think the price will be down between 15% and 20% depending on where the forwards are,” Layton added.

“This is a once in every six or seven year opportunity for producers to hedge… but it is not something we see lasting,” he said.

Layton added that the LME three-month zinc price may well touch the $3,800-$4,000 per tonne range this year, within the next six months.

“This price we will see is not something that we will be able to see next year, the next year, or the year after that. This is an extraordinary period for the level pricing and the level of margins. I do not want that to get forgotten amongst the short-term bullishness,” he said.

“Are we expecting to see a sharp drop soon? Yes. I am confident by the second half of 2019 or the start of 2020, the zinc price could drop back to $3,000 per tonne,” he added.

Up to 880,000 tonnes of new zinc capacity is expected to come on line this year, according to the International Lead & Zinc Study Group (ILZSG), which is set to dampen the price. 

More supply could be met with sluggish demand at the end of the year, which would see the metal unable to maintain its current high levels – especially if it climbs to $4,000 per tonne.

“We are less bullish for the future of zinc,” Michael Widmer, commodities strategist at Merrill Lynch, added.

“We do not see a surplus in the market but for sure there will be less deficit – we are not bearish – but defiantly less bullish,” he added.

Widmer explained that the underlying story to zinc is that mine supply is responding to the high prices and therefore we will see more material.

“The reality is zinc is different – you can get a supply response. New Century are a good example; they came in because of higher prices. In the later part of 2019 we would not be surprised to see prices turn,” he concluded.

Metal Bulletin Research forecasts that zinc will hit a high of $3,725 per tonne this year – with a consensus average of $3,243 per tonne. While it predicts there will be only a 290,000-tonne deficit compared with a 493,000-tonne deficit in 2017.