Fitch Solutions Macro Research has revised its forecast zinc price for this year down to an average $3 000/t, compared with the previously expected $3 100/t, after the zinc price fell by more than expected in the third quarter.
The decrease in the zinc price is attributable to the escalating trade dispute between the US and China, rising global protectionism, and a stronger dollar.
However, Fitch Solutions said this was mainly sentiment-driven, with zinc fundamentals remaining largely tight – less so than in 2017, but still in a deficit.
The Chinese government’s renewed support to the infrastructure sector through tax cuts and greater project approvals in the second half of this year is expected to generate stronger stainless steel, and by extension zinc, demand than experienced in the first half of the year.
As a result of this demand, the zinc deficit will deepen over the remainder of this year, despite the average deficit for 2018 being narrower than in 2017.
LONG-TERM OUTLOOK
Up to 2022, Fitch expects zinc prices to post a gradual uptrend as markets remain in deficit and Chinese demand growth remains supported.
While the US and China trade conflict is expected to remain over the coming quarters, Chinese authorities’ response to economic headwinds in the form of renewed support to the infrastructure sector is set to continue to offset the fallout of this on investor sentiment.
Beyond 2022, the market is forecast to shift to a surplus as Chinese demand slows and prices, subsequently, trend slightly lower towards the back end of the forecast period to 2027.
The global refined zinc market is expected to remain in deficit over the coming years, owing to modest demand growth and continued ore undersupply. Zinc refiners will struggle to secure zinc concentrate on the back of production curtailments over environmental regulations.
Fitch Solutions forecasts global refined zinc production and consumption growth to average 1% and 0.6% respectively from 2018 to 2027.
The escalating trade dispute between the US and China presents a key downside risk to the company’s forecast.