Is February the Month to Invest in Zinc?

Is February the Month to Invest in Zinc?

  • Zinc stocks are at historically low levels
  • Demand is higher than supply, with no signs of this changing
  • Prices are lower than all of the indicators suggests they should be

You might be surprised to learn that zinc is the fourth most used metal in the world. It is part of a huge global market that is worth around $35 billion annually.

This is an incredibly useful metal that is used in a wide variety of products as well as in the construction industry. Is it worth investing in this commodity this month?

The Price History

The highest-ever price of zinc was reached in 2008, when it climbed to above $2 per pound. It has also seen big drops in the past, falling to around $0.50 at the start of 2009. It had also been around $.0.40 back in the 90s.

Right now, the price is pretty low, sitting at around $1 per lb. You might also see the price expressed per ton, which can be confusing.

More recently, the price has dropped to its lowest level since June 2016. The coronavirus outbreak seems to be to blame. Zinc prices have been extremely volatile this year and should vary in the same way in the future.  

What Affects the Price of Zinc?

As is normal in the commodities markets, supply and demand is the main issue. To understand future trends, we need to know whether demand is likely to be greater than supply, or the other way around.  

In the last year or two, some extra factors have come into play as well. The trade wars across the planet affected the price of steel, due to added tariffs, and zinc got caught up in this as well.

We have already seen that the coronavirus has had a negative effect too. This has had a serious effect on the demand for the metal, but it will also have caused production levels to drop. Once the market gets back to normal, we could see demand out-strip supply.

The Chinese market is also hugely important. Smelter production in the giant Asian country has dropped dramatically, with an environmental crackdown partly to blame. If China can’t raise its levels of production soon then a global shortage is almost guaranteed.     

Meanwhile, production has risen slightly in other countries. An overall 1.7% uplift was seen in 2018. Russia, Greece and Finland are among the countries that have ramped up production most significantly. At the same time, China’s imports of zinc concentrate were up by 21.3% and refined zinc by 7%.

What Does the Future Hold?

The most interesting factor for potential zinc investors is that stocks are incredibly low.  In the last week, it has been reported that stocks of the metal held in LME-certified warehouses have reached their lowest level in close to 3 decades.

It is worth noting the last time stock levels were so low was just before the spike in prices in 2008.

Yet, the International Lead and Zinc Study Group pointed out last year that the worldwide market for refined zinc metal “was in deficit by 326,000 tonnes over the first 11 months of 2018”. Inventories are reported to have decreased by 161,000 tonnes in the period mentioned.

Despite this, the price didn’t make the expected jump in 2019. Stocks then fell further in 2019, with a record deficit of 243.7 kt during the year. Production increased by 2.8% and consumption grew by 5.4%.

Summary

It seems that zinc should probably be priced higher than it is. All of the signs are that it should cost more than it currently does. Quite why it remains so low is a bit of a mystery. Investors looking to get involved with a commodity that has the potential for rising in the near future should certainly have a look at buying zinc.

By Robert Bell
Having worked for years in the UK banking industry, I began writing and reporting financial markets after migrating abroad to Bolivia. My interests include learning new ways to make money and learning to speak Spanish.

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