Zine premiums are likely to remain range-bound for the balance of the year with demand tepid and inventories falling.
In the event Canada's CEZinc refinery stays on strike until 2018 and demand picks up, premiums may be in the lower double digits in 2018. However, most participants do not anticipate any movement until 2018 contract discussions start in the fall. Special high grade (SHG) zinc premiums traded in the 8-9¢/lb range this month, similar to its year to date average.
LME warehouse stocks are at their lowest levels since January 2009 as curtailments of zinc production pushed down inventory levels through the year.
Supply concerns and expectations of stronger Chinese demand also strengthened exchange traded zinc prices this year with the deficit expected to grow by the end of 2017.
Three-month LME zinc prices closed at $2,831/metric tonne (t) on 25 July, up by 11pc from the start of the year.
There is potential for further zinc price increases in the third quarter after the metal outperformed the LME base metals complex in 2016. The tight concentrate market is expected to support a refined metal deficit this year and push LME prices higher into the third quarter.
Still, analyst forecasts are mixed for the balance of the year. Macquarie bank forecasts zinc to average $2,950/t and $3,200/t for the third and fourth quarters while Sucden Financial forecasts $3,267/t and $3,700/t.
Commerzbank forecasts $2,550/t and $2,600/t for the third and fourth quarter; Morgan Stanley forecasts $2,646/t and $2,646/t; and Societe Generale forecasts $2,520/t and $2,700/t.
The issue of hidden stocks remains, mainly in China, with its unreported stockpiles of zinc. Many believe that those concealed stocks have dwindled,which is one of the reasons for the decline in LME stockpiles.
The International Lead and Zinc Study Group (ILZSG) reported that the global market for refined zinc was in a 178,000t deficit in the first five months of 2017, with total reported inventories declining by 167,000t. The ILZSG expects global demand to increase by 2.6pc to 14.08 million tons and for the deficit to end the year at 226,000t.
Higher LME zinc prices have prompted a number of recent restarts, including Nyrstar's 50,000t/yr middle Tennessee mine, Amak's 22,000t/yr Al Masane mine in Saudi Arabia and Mitsui's 35,000t/yr Huanzala mine in Peru.
The potential restart of Glencore's 500,000t/yr of idled zinc capacity also remains a threat to the tight supply outlook, but so far the diversified miner has announced no plans to restart operations.
Despite the restarts and mine expansions, Morgan Stanley continues to forecast a deficit for 2017.
US auto production numbers have fallen this year, which has weighed on demand for galvanized steel.
The galvanizing market for the second half of the year will also depend on the results of government's Section 232 probe, which may result in tariffs on steel imports for national security reasons.
