“Global supply and demand conditions for refined zinc are in deficit in 2014,” Scotiabank economist Patricia Mohr reports in August’s Scotiabank Commodity Index . “For nickel, the world supply and demand balance will shift into a marked deficit in 2015, as China depletes its inventory of Indonesian ore production.”
Scotiabank’s Metal & Mineral Index rallied strong in July as base metal prices jumped higher across a broad front — “pushed up in part by exuberance over better-than-expected results for China’s economy”.
The prices of both zinc and nickel has witnessed steady rise during this year, the report noted. The zinc prices have already appreciated by nearly 17% YTD. During past month alone, the prices rose by nearly 11%. Meantime, nickel prices have rallied nearly 37% so far this year. The prices have moved to $8.64 per pound from $6.31 per pound at the start of the year.
Global supply & demand conditions for refined zinc have pulled down LME & Shanghai Futures Exchange stocks by 20.8% since late 2013. Chinese imports of refined zinc have jumped by 39.3% through July, given solid underlying demand growth — up about 7% in 2014, boosted by strong auto production (+9.4 % YTD), the rising content of galvanized steel in cars to prevent rust (Chinese consumers are demanding higher-quality motor vehicles) and low operating rates at Chinese smelters (74%) due to weak treatment charges & poor profitability. In Mohr’s view, zinc prices will climb to $1.25 in 2015 and a very lucrative $1.60-1.70 in 2016.
Zinc prices need to elevate itself to at least $1.13 to trigger new mine development. But only higher prices of the metal could ensure ample supplies to meet the demand. The report states that the metal prices are likely to hit $1.60 towards the end of this decade.
At the same time, a recovery in nickel prices is also underway. LME nickel has spurted from $6.31 per pound in December 2013 to $8.64 in July and should climb to $10.75 in 2015 and $12 in 2016. The January 11, 2014 ban on the export of unprocessed nickel-containing ore from Indonesia (accounting for 28% of world supplies) is likely to hold (without exception).
Chinese users have already rushed to step-up purchases of FerroNickel (FeNi) and nickel-containing ore from the Philippines, though Filipino mines with ore grading more than 1.5% nickel have now all been suspended due to environmental breaches. Prices will likely remain high until 2016 third quarter, when new processing plants become available in Indonesia; sixteen have been proposed, funded mostly by China.