Zinc three-months prices are expected to trade in a range of $2,500-$2,550/mt in the second quarter, supported by an ongoing tightness in the concentrates and refined metal markets and steady demand growth, brokerage Sucden said in its quarterly report.
"The fundamentals remain well supportive as mine supply contracted by 6.4% in 2016 on a combination of depleted reserves at some legacy mines, the continued temporary shutdown of excess capacity and a lack of investment in new mine supply," the report said.
The tightness has mostly hit the concentrates market, with stockpiles drawn down steadily throughout 2016 -- a trend that was sustained in Q1.
"Smelters increasingly report their difficulty in securing concentrates even with decreasing TCs. Treatment charges are expected to average $179/mt this year, a major cut from last year's $211/mt and 2015's $243/mt," the brokerage said.
The tighter fundamentals are set to persist supporting zinc prices and reigniting the bullish outlook for the market. But the main question remains whether Glencore in the current environment will be tempted to restart its idled capacity after cutting some 500,000 mt/year in late 2015, Sucden suggested.
"Consumption is expected to grow a steady 2% this year and with a tight outlook for both refined metal and concentrates, the world's largest zinc miner could be tempted to bring some of this tonnage back online," it said.
Stock levels in LME warehouses have been declining since the beginning of the year, a trend that likely exists in invisible stocks as well.
"LME warehouse inventories registered significant outflows during the first three months of the year, declining 13% in Q1 after posting a 2.6% decline in Q4. Outflows have remained steady at the start of Q2 with warehouse inventories hitting 367,000 mt at the time of writing, the lowest level since July 2009," the brokerage said.
Sucden said LME money manager net positions are still overwhelmingly bullish standing at 75,079 contracts, approximately 20% of open interest, but have come off the recent highs of above 90,000 contracts when zinc prices were close to $3,000/mt.
The brokerage's three-months price forecast for 2017 stands at $3,221/mt.
