Zinc stocks held on the London Metal Exchange fell to their lowest level since 1989 this February. A signal which is accompanied by fears of supply in the coming years, for this key metal which allows steel not to rust.
In the warehouses of the London Metal Exchange Zinc stocks have fallen by more than 90% since December 2021. They fell below 30,000 tonnes, and even 20,000 tonnes in early February. At this level, stocks are equivalent to a single day of production and therefore consumption. A ridiculously low figure, explains an expert in the sector. Because even if the LME represents only a part of world stocks, it remains a reference market for zinc.
To supply them again, a surplus would be needed on the market, which is not the scenario that is emerging, quite the contrary.
Zinc, a critical metal
Zinc deposits are difficult to find for geological reasons, and the metal has shown little interest from investors in recent years. Exploration was therefore limited. To date, documented reserves are equivalent to less than 20 years of production. However, it takes between 15 to 20 years between the time of discovery and the start of production of a new mining deposit.
Demand, which until then had been fairly stable, growing by around 2% per year, could be set to rise. This would then make supply critical in the context of current production capacities. It would be enough, for example, for China or India to decide to use galvanization on a large scale, in the construction or automobile sectors, to trigger a zinc rush. A demand may already be anticipated and which could explain, it is a hypothesis, the current state of stocks.
A tight market in perspective
For the time being, the courses argue rather for a structural drop in prices, because zinc is now sold at a higher price for immediate delivery than for delivery in several months. They have also been falling for three weeks, influenced in part by the uncertainty of the Chinese economic recovery. But in view of the consumption that is looming, the 10-year trend is that of an inevitable increase, assures one of our interlocutors.