Zinc Price Continues Positive Momentum as Supply Chain Remains Tight

Zinc, the best performing metal of 2016, is continuing its positive momentum into 2017 and on Monday finished the session on the London Metal Exchange up 1.8% at $2,667 per ounce, a three-week high.

Zinc is being supported by tight market fundamentals with the expectations of a supply deficit buoying the metal’s price. On Monday the commodity gained some extra upside impetus from a pullback in the US dollar. LME zinc prices appreciated by 60% in 2016, boosted by a significant drop in supplies after major miners shuttered some operations following years of weak prices. At the same time, demand for zinc heated up as China embarked on an infrastructure spending program.

Looking to 2017, it is expected that zinc will continue to gain support from tightening market fundamentals, but at the back of traders’ minds is the possibility of mining restarts as the metal appreciates. While this is a concern, so far only smaller miners have indicated restarts could be coming. The world’s largest zinc miner, Glencore, whose zinc mining cutbacks have really driven this rally will be cautious about restarting idled production. In December, the company’s CEO said that its zinc capacity would remain idled until market conditions were such that new supplies would not price prices lower.

The zinc price rally is expected to persist at least through the first half of the year, driven by China’s infrastructure spending while the possibility for infrastructure development in the US could contribute to a longer term rally. President-elect Donald Trump made a campaign promise to stimulate the US economy and infrastructure development was one of the measures discussed to accomplish this goal. Also, another positive for zinc is the recent data that has shown a healthy global auto market. Zinc is used in galvanizing steel, and galvanized steel in is used to build cars.

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