The Financial Times reported this morning that Zinc fell to a six-year low of $1,444.5 a ton on the London Metal Exchange (LME). This new low follows years of price fluctuations—the price of zinc in September 2014 was $2,300 per ton, which dropped to $1,700 per ton in September 2015—as the metal joins a number of other commodities that have hit record lows in recent months.
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With China’s economic slowdown at the center of plummeting commodities prices, the slow descent of industrial metals towards financial crisis levels is troubling.
Slowdown in China will impact demand for galvanized steel
Modernization and urbanization in China have been key drivers for the zinc market, since one of the biggest application areas for zinc is the galvanized steel used in everything from contruction to automotive parts.
Global zinc market by first-use application 2015
Source: Technavio, 2016
Galvanization is the process of immersing steel in molten zinc to create a corrosion-resistant coating. It also provides resistance to mechanical damage. This process is used in many industrial applications like construction materials, automobiles, and electrical appliances. These products are lightweight and offer high strength, formability, and recyclability.
Galvanized steel will remain in high demand globally over the next five years. However, the APAC region (which includes China) is by far the biggest consumer of zinc, accounting for 65.8% of the global market in 2015.
So it’s easy to see why a slowdown in China is making some people nervous.
But it’s not all bad news on the commodities front. According to new research from Technavio, the global zinc market will still see moderate growth from 2015 to 2020. In terms of consumption, the market will increase from 15.8 million metric tons in 2015, to 19.19 million metric tons by 2020, growing at a CAGR of 3.96%.
A supply deficiency caused by several mine closures could be good news for the value of zinc over the next few years
Brunswick Mine in New Brunswick, Century Mine in Australia, and Lisheen Mine in Ireland all closed in 2015, and another ten zinc mines will close during 2016-2017, which will reduce global zinc production by approximately 10%.
Zinc suppliers are using stockpiles to make up for production shortfalls. Reuters recently reported that closing the supply-demand gap won’t necessarily boost prices, but it might be enough to at least stop the decline until demand picks back up.
For more information, view Technavio’s report on the global zinc market 2016-2020.
