LONDON Glencore Xstrata Plc sees the global zinc market moving into structural deficit as new mine supply fails to keep pace with a 5-percent annualized increase in demand.
The refined market has been in deficit for seven consecutive quarters and spot premiums for special high-grade zinc are rising globally while exchange stocks are falling, the company said in its first investor day since completing the acquisition of Xstrata.
The concentrates market will also move into a deficit over the next few years as miners fail to deliver the 600,000 tonnes per year of new mine supply needed to keep pace with demand, Daniel Maté, head of zinc and lead marketing, told investors in London Sept. 10.
Zinc supply forecasts in recent years have tended to show a steep drop-off in supply two or three years down the pipeline, but so far zinc miners have been able to meet the projected shortfall by investing in expansions and new projects extending the lives of mines.
But Glencore believes the market will enter a structural deficit this time around because the industry is more disciplined, major producers have exited the business due to poor returns and junior miners wont be able to secure financing to bring their projects online, Maté said, adding that as fading mine supply creates a steepening deficit over the next few years, the zinc market might witness a bull run similar to the spikes in 1988, 1992, 1997 or 2006.
"I have been doing this for 25 years ... and I can tell you when it rallies, it rallies big time," he said.
The companys already bullish projections for zinc supply might even be too conservative, Maté said.
"All this is based on official Chinese figures, and we honestly believe they are overstated. There is the potential for the change to be even more brutal and sudden than anticipated," he said.
A version of this article was first published in AMM sister publication Metal Bulletin.