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Zinc Prices Surge Amid Supply Shortages and Market Volatility

Zinc prices saw significant fluctuations in 2024 due to concentrate shortages and investor sentiment. The year's end witnessed a robust closing price. Investors should remain vigilant as changes in demand could impact stock values.

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AI Rating:   5

Zinc Market Performance Overview

Zinc emerged as one of the best-performing base metals in 2024, showing a 13 percent increase from US$2,621 per metric ton (MT) to US$2,979. The market dynamics were influenced primarily by supply chain constraints due to concentrate shortages, particularly affecting Chinese refiners. This created a competitive environment with smelting operations reducing treatment charges.

Market Volatility and Investor Sentiment

Throughout the year, zinc prices experienced considerable volatility, with significant price movements between highs and lows. For instance, zinc reached a peak of US$3,198 on October 2 but saw declines later in the year. These fluctuations were seen against a backdrop of weaker fundamentals for sustaining price increases, particularly in relation to the Chinese housing market.

Supply and Demand Dynamics

The supply side was notably impacted by a lack of concentrate for Chinese refiners, leading to output adjustments. While the initial production cuts did not yield the anticipated tight supply, the situation worsened in H2 when processor agreements to curtail demand amounted to nearly 1 million MT. The overall supply for the refined zinc market was analyzed to be in surplus initially, creating further market pressure.

Impact of Economic Indicators

Compounding these issues, the expectations surrounding a US Federal Reserve interest rate cut added speculation to market performance. However, disappointing outcomes from the Chinese real estate sector, marked by a 19.7 percent drop in new home sales compared to the previous year, dampened bullish sentiment. Moreover, high inflation and interest rates in Europe continued to suppress the construction sector's vitality, which is critical as half of refined zinc is utilized in producing galvanized steel.

Status of Companies Involved

As the economic indicators suggest continuing challenges in housing and construction, companies heavily reliant on zinc, such as Teck Resources and Trafigura, may face stock price implications. Investors should monitor these developments closely as any increased demand or supply stabilization could drastically shift market dynamics and subsequently stock valuations.

Stocks:  TECK C