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In 2023, the zinc market entered a surplus range, causing zinc prices to fall, ultimately closing at $2,658 per ton. This differed significantly from early predictions in the market. Under the expectation of moderate demand growth, BMI Research initially forecasted the average price of zinc for last year to be $3,000 at the beginning of 2023, but later revised it down to $2,550.
In April of last year, the International Lead and Zinc Study Group projected a 2.1% increase in zinc demand for 2023, which was later revised down to 1.1% in October. By the end of the year, the CRU Group estimated a 0.4% shrinkage in zinc demand for the previous year. The main reason for this was the weakened demand due to China’s economy, which accounts for 60% of global zinc demand, struggling to recover after the pandemic. Additionally, in Europe, the increase in refined product supply due to falling energy prices resulted in an oversupply situation.
Due to the sluggish global economic activity, the downward trend in base metal prices is expected to continue into 2024. Specifically for zinc, the metal is anticipated to continue facing an oversupply and weak demand situation. The World Bank predicts a 4% decrease in zinc prices for 2024, followed by a 4% rebound in 2025. Additionally, Fitch Ratings also forecasted in a report on December 11th that zinc prices will fall to $2,500 this year.
The production of zinc in 2023 remained relatively stable, but the International Lead and Zinc Study Group predicted in October last year that global production for 2024 will increase by 3.9% to 12.91 million tons.
On the demand side, several factors that pressured zinc prices in 2023 are expected to continue into the new year. These include sluggish global economic growth, especially in North America and Europe, where high interest rates are weighing down real estate and capital project investments, subsequently reducing the usage of base metals. In addition, China’s economy, especially the lackluster recovery of its real estate and manufacturing sectors post-pandemic, dampened zinc demand. The effects of stimulus measures at the end of the year are expected to fully materialize only in the second half of 2024.
Helen O’Cleary, the Chief Analyst for Base Metals at CRU Group, stated that due to the downturn in the real estate industry and the bleak outlook for China’s economic growth, they predict that the interest rates in the US and Europe will not begin to decline until the second quarter of 2024.
However, it is noteworthy that while the refined zinc market is experiencing oversupply, there is a high probability of a shortage of zinc concentrates in 2024, which could provide support for zinc prices.
Nevertheless, the market itself has regulatory effects. Depressed zinc prices combined with weak demand may prompt some producers to continue to cut production or even cease production, which also poses a bullish factor for zinc prices in 2024. For example, in September of last year, Almina-Minas do Alentejo announced the closure of Aljustrel in southern Portugal until mid-2025, and Nyrstar (EBR:NYR), a subsidiary of Trafigura, closed two zinc mines in Tennessee, USA at the end of November.
In the long run, the transition to renewable energy will boost zinc demand, with applications such as zinc coatings on solar panels and wind turbines being key drivers. In addition, with the rise of non-lithium batteries like zinc-air batteries, there is also anticipation of demand from the electric vehicle industry. Apart from electric cars, zinc is widely used in the automotive industry for non-corrosive coatings and galvanized steel. Global automotive sales in 2024 are expected to grow and recover to pre-pandemic levels at 88.3 million units, with production expected to slightly decrease to 89.4 million units.
In summary, against the backdrop of continued oversupply, zinc prices in 2024 are expected to remain relatively stable. This year, China’s economic recovery still faces many difficulties, and although the central banks in Europe and North America are striving to reduce interest rates to 2%, the current high interest rates continue to exert pressure on real estate and capital investments in various industries, including metals and mining.
