Zinc prices have rallied since 2020 over a long-standing mismatch between supply and demand, and despite global refined zinc output ramping up over recent months compared to 2020, it has been outpaced by demand.
Prices have averaged $3,688 per tonne in the year to date and are currently hovering around $4,069 per tonne. According to Fitch, at these levels, zinc is close to reaching its all-time high of $4,442 per tonne achieved in 2006.
“Our 2022 price forecasts imply that we expect prices to stabilize and weaken from here on in the coming months, despite remaining elevated compared to historical standards,” Fitch analysts said.
On the demand side, Fitch expects strong consumption from the steel sector to continue boosting demand for zinc in the coming months, although demand growth will start to slow.
“We expect global crude steel production growth to average around similar levels in 2022 (3.6% year-on-year) as 2021 (3.4% year-on-year), and this suggests a similarly robust growth in galvanized steel production, which is the main source of demand for zinc,” said Fitch.
“However, we expect the pace of global steel production growth to slow, led by China, and ultimately average 2.2% year-on-year in 2023.”
Further out, Fitch expects zinc prices to remain on a steady downtrend out to 2031 as global demand slows while supply improves.
“Ultimately, zinc prices will be dragged lower as long-term production growth outstrips subdued consumption growth,” the analyst said.
The most significant drag on global zinc demand growth will come from China, accounting for around half of annual refined zinc consumption. Fitch forecasts steel production growth in China to slow from a yearly average of 5.5% from 2018 through 2022 to just 1.3% over the subsequent five years.
“As a result, we expect China to flip from being a significant net importer of refined zinc, as has consistently been the case over the past decade, to become a major net exporter. We forecast China’s annual refined zinc production balance to average a 196,000-tonne surplus over 2026 to 2031 compared to a deficit of 292,000 tonnes from 2016 to 2020, which will make the country a key driver of global zinc oversupply.”
Click here for an interactive zinc price chart.
