LONDON – Zinc prices are due to remain firm over coming months on the potential for soaring power costs causing more disruptions at smelters, keeping supply and inventories tight.
Benchmark zinc prices on the London Metal Exchange have shed about a fifth since surging to a 14-year peak in mid-October after smelter shutdowns in Europe were less severe than expected.
However, since the start of the year, prices of zinc, which is mainly used for galvanising steel, are up 16%.
Prices spiked after Nyrstar said it would cut production by up to 50% at its three European zinc smelters, but customers have so far been adequately supplied, said Helen O'Cleary, senior analyst at consultancy CRU.
"Of course, there is still potential for cutbacks given that European power prices remain high and are likely to do so through the winter months," she added.
CRU has pencilled in 40 000 tonnes of disruptions outside of China in the fourth quarter and expects LME prices to rise to an average of $3 500 a tonne next year, from $3 190 at midday on Friday.
Glencore said last week it would suspended zinc operations at its 100 000 tonne a year Italian plant due to high power prices.
Bulgaria's Plovdiv smelter has also shut.
European power prices have soared to multi-year highs this year and they are unlikely to ease before the end of the year, analysts say.
Most European smelters use energy-intensive electrolysis and smelter costs had jumped by nearly $900 a tonne based on peak power prices this year, Bank of America commodity strategist Michael Widmer said in a note.
Low treatment charges, which smelters charge miners for processing concentrates, are also crimping smelters' bottom line.
JP Morgan expects a refined zinc deficit this year of about 50 000 tonnes and 34 000 tonnes in 2022, with prices averaging $3 400 a tonne in the first quarter of next year, it said in a note.
Inventories are at low levels, leaving scant cushion if a fresh wave of smelter shutdowns hit the sector during the winter.
LME stocks have nearly halved since April while Shanghai Futures Exchange levels are down 43% since March.