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Recovering Chinese steel output is boosting zinc price over short term

8th September 2020

By: Marleny Arnoldi

Online News Editor

     

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On the back of a stronger-than-expected rebound in economic growth in China, research agency Fitch Solutions Macro Research has revised upward its zinc price forecast for the year.

Initially, the agency anticipated a $2 100/t zinc price, but has revised it to $2 200/t, compared with a zinc price of $2 507/t at the end of 2019.

Zinc prices had fallen by 17.3% on average over the first three months of this year, but have since recovered to post new highs for the year, at a current price of about $2 483/t.

The agency expects the price of zinc to gradually drop further every year to $2 000/t by 2024.

Fitch Solutions says a rapid recovery in steel production and, therefore, zinc consumption in China will buoy zinc prices over the remainder of the year and into 2021.

However, sustained market oversupply will drag zinc prices lower in coming years.

Fitch Solutions explains that this structural decline will be driven by sluggish growth in global steel production, as galvanising steel is the primary use of zinc. “We forecast that, after a rebound in 2021, annual steel production growth will steadily slow down in the coming years due to declining capacity increases in China and Europe.

“In China, escalating environmental restrictions on producers and weakening demand growth from the construction sector will cap steel production growth rates, while European producers will cut production in the face of low steel prices.”

The agency adds that, given this weakening backdrop, it forecasts global zinc consumption growth to slow from an average of 2.2% year-on-year over 2010 to 2019 to an average of 1.1% year-on-year growth over 2020 to 2029.

The slowdown in consumption growth will keep the market in surplus over the coming years.

Fitch Solutions maintains a real gross domestic growth forecast of 2.2% this year for China, unless there is a pronounced second wave of Covid-19 with more lockdown measures.

Edited by Chanel de Bruyn
Creamer Media Online Managing Editor

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