Fitch lowers 2019 zinc price to $2,500 a tonne despite strong fundamentals

Ongoing US-China trade war weighing on prices even as production declines by 1.1% y-o-y in Jan-Jun, while consumption grows by 2.3% in the same period

Citing continued deterioration of investor sentiment on the back of ongoing US-China trade war which is weighing on the economy, Fitch Solutions Macro Research today lowered its average global zinc price estimates to $2,500 per tonne for 2019 from $2,600 per tonne earlier.

This is despite tightening fundamentals, as global zinc slab production has declined by 1.1 per cent y-o-y in Jan-Jun, while consumption has grown by 2.3 per cent y-o-y in the same period.

Furthermore, global inventories continue to fall, declining steadily since March 2019 to reach 285,000 tonne in September, said the report.

“We expect prices to stabilise over Q419 as appreciation pressure from refined production outages outside of China and shrinking inventories are offset by a strengthening dollar that will keep Chinese seaborne demand at bay,” said Fitch Solutions.

Despite weak seaborne demand, domestic Chinese consumption of zinc will rise with a solid steel production outlook, meeting the rise in production since May 2019 to create a balanced market. The smelter outages in Russia and the US will continue to weigh down the global refined zinc production growth rate, keeping global supply subdued.

The rather bullish supply side dynamics will be offset by a slightly strengthening US dollar and weakening global zinc demand picture, thus creating a balancing act and allowing prices to stabilize, explained Fitch Solutions.

“Into 2020, we expect zinc prices to remain pressured on the back of bearish sentiment stemming from the US-China trade war,” said the report.

With our global team’s core outlook of no significant deal being reached to end the US-China trade war before the US 2020 presidential election, we expect continued slowing global growth, it said.

The combination of both of these factors will weigh on zinc prices in 2020, which we forecast will average $2,450 /tonne.

In the long term, zinc prices are expected to average a gradual downward trend as the supply deficit narrows and shifts into surplus by 2023. Global steel production outlook is expected to slow considerably over Fitch Solutions’ forecast period to 2028 which will weigh on refined zinc consumption growth over the coming years, it said.

“We forecast steel production growth to decline from 7.2 per cent y-o-y in 2019 to 3.1 per cent y-o-y by 2021 before steadily declining to 1.0 per cent growth by 2028. The slowdown in zinc consumption growth, averaging 1.1 per cent growth over 2019 -2028 compared to 1.7 per cent over the previous decade, will be outpaced by our average production growth forecast of 1.6 per cent y-o-y through 2028,” said Fitch Solutions.