Zinc Prices Explained
Zinc prices dropped 6% as supply outpaced the slow demand, particularly from the top producer and consumer, China. The country hasn’t recovered from its slumping property development projects. Adding price pressure is the declining European zinc demand which further affects zinc market costs.
Why are zinc prices fluctuating?
1. Chinese Demand
Like any other commodity, China plays an important role in determining zinc prices. While China is the world’s number 1 producer of zinc, China tops among consumers of refined zinc used in galvanized steel.
However, China’s slowed GDP growth recently coupled with the country’s deflation put zinc prices into question. Thus, these troubles not only shake the marketability of the metal industry but the global economy as well.
Additionally, monetary policy from the Chinese state-owned banks is one important factor that can affect zinc demand and prices as stimulating measures can stoke demand for this commodity while tighter monetary policies can depress demand.
2. Chinese Supply
Chinese economic growth in the past 3 decades sacrificed its environmental wellness due to heavy construction activities and mining operations across the country. China’s Environmental Sustainability Index record showed that out of the twenty cities with the worst air pollution worldwide, 16 are located in China, including Beijing.
The country’s poor air quality forced the government to revamp its mining operation guidelines as this activity is the major contributor to pollution.
With China reducing its zinc production and relying instead on imports then, it will cause a spike in zinc prices. Additionally, its recent deflation also made the country localize its zinc production and intensify its metal stock inventory.
3. The U.S. Market
Construction and infrastructure represent a very large percentage of galvanized steel demand.
While zinc demand in the US opened soft this year, the country’s need still creates shifts within its demand and prices as its automotive industry rebrands to manufacturing electric-powered cars which heavily need zinc and steel.
Thus, the country’s construction and automotive industry are still considerable zinc price movers.
4. Input Prices
Mining and refining zinc requires ample supplies of coal, electricity, and crude oil. This production cost is not only expensive but its price depends on the supply, demand, and variation value of these 3 important factors.
Thus, apart from its supply and demand issues, zinc prices are influenced by its production cost.
Which variables impact the price of zinc?
- Chinese Demand
- Chinese Supply
- The U.S. Market
- Input Prices
- Global Stocks
- Geopolitical Events
Where does zinc come from?
According to the International Zinc Association (IZA), zinc is the fourth most used metal because it makes an excellent coating for protecting steel from corrosion and is indispensable in a vast range of consumer and industrial products.
Zinc ore occurs in two types of deposits:
- primary zinc ore in thin veins known as rakes
- secondary deposit formed by weathering of the primary mineral veins.
The earliest evidence of zinc production in India comes from the mines of Rajasthan which gave definite evidence of zinc production going back to the 6th century BC.
Andreas Sigismund Marggraf, a German chemist discovered zinc elements in 1746 by heating pure zinc with calamine (ZnCO3) with charcoal.
This discovery led to further modifications which various industries such as the construction, automobile, and medical benefited the most. Its extraction method includes the following:
1. Smelting – The most common method of extracting zinc. The ore is heated in a furnace with coke or coal which reduces the zinc oxide to metallic zinc.
2. Hydrometallurgy – This technique uses a chemical solution to dissolve the zinc from the ore. The zinc is then precipitated out of the solution and purified.
What are the uses of zinc?
1. Galvanizing – 60% of the global zinc supply directly goes to the steel industry. Galvanizing is a process of coating iron and steel with zinc to protect them from rusting. Zinc is more electrochemically active than iron so when exposed to other elements, it corrodes first, protecting the iron or steel underneath.
2. Alloys – Zinc is a common alloying element. It is added to copper to form brass and to other metals to form materials with specific properties. For example, zinc is added to aluminum to make it stronger and more corrosion-resistant.
3. Rubber – Zinc is an important ingredient in rubber manufacturing because it helps to vulcanize the rubber, making it stronger and more durable.
Additionally, zinc is used in rubber products to improve their resistance, aging, and ozone cracking.
4. Medicine – Apart from its important role in the metal manufacturing industry, zinc is an essential nutrient for humans, animals, and plants. It is involved in a wide range of biological processes such as cell growth, immunity, and wound healing.
Its medical applications include:
Zinc oxide – For sunscreens, ointments, and other topical products to treat skin conditions such as diaper rash and eczema.
Zinc lozenges – Zinc lozenges shorten the duration of the common cold.
Zinc supplements – Treat zinc deficiency which causes various health problems such as growth retardation, impaired immune function, and skin lesions.
Overall, zinc is an essential metal with a wide range of industrial applications and this multi-functional element comes from its top producers such as China, Peru, Australia, India, and the United States.
What is the future price of zinc?
The zinc metal demand outlook looks uncertain due to the varying energy prices, fuel production cuts, and the commodity’s market volatility.
The soft demand and the Chinese unresolved economic deflation coupled with intensified metal stocking inventory may lead to a reduced supply from the number of zinc producers.
However, analysts are hopeful that zinc output and demand from China will return to its normal production performance after the People’s Bank of China announced its interest cuts on bank reserves to support its domestic market.
Thus, the overall zinc price forecast will continue to be modest at a trading value of $2,200 per metric in 2025.