Zinc and Lead Surplus Grows as Economic Uncertainty Clouds Outlook

The oversupply of lead has entered its third straight year while zinc is experiencing its first year of oversupply. These two metals are often called sister metals because they are usually extracted from similar ore material. Their “sisterhood” just took on additional meaning as their markets are predicted to be oversupplied this year.

The ILZSG, or International Lead & Zinc Study Group, just met for the first of their two scheduled meetings this year and the forecasts they released further strengthened bearish sentiments for these two metals.

The group revealed that zinc and lead experienced a drop in their utilization last year and modest recovery is expected to occur this year. Fund managers are already showing that their optimism for zinc is dwindling. Data from the LME shows that net long contracts were 41,000 in mid-March but these have since reduced to a paltry 1,781.

Last year, zinc production reduced and created a modest deficit of 15,000 tons. However, production is expected to see a 4.3% uptick this year, which will result in a surplus on the market. Already, some indications of this oversupply are becoming evident. For example, the charges levied by spot smelters have risen, a clear indication that mined concentrate has increased in volume. Last year’s charges slumped to record lows.

As the supply rises, the ILZSG says the demand is unlikely to absorb the extra production. The group expects demand to increase by just 1%, down from the 1.6% forecast that the group made during its session last year in September.

One major reason for this downgraded demand-growth prediction is that approximately 55% of all the zinc mined is utilized in the production of galvanized steel. Given that the construction industry has slowed, especially in China, less galvanized steel will be required in the short term. The slump in the construction industry has therefore watered down the market prospects for zinc.

As for the other sister, lead, demand-side factors like a slump in auto manufacturing have combined to cloud the prospects of the metal. Electric vehicles also require a lead-acid battery that is smaller than the one which goes into an ICE vehicle. As the transition to EVs gathers steam, the demand for lead to make lead-acid batteries will not grow as robustly as it would if only ICE cars were being made.

How far zinc and lead bears intensify their sentiment will be revealed in the course of time as market fundamentals strengthen or shift. For mining industry players like Aston Bay Holdings Ltd. (TSX.V: BAY) (OTCQB: ATBHF) that have interests in zinc and other metals like copper and gold, the downgraded outlook for zinc is unlikely to dampen their strategic direction as they can rely on metals like gold that bulls can’t seem to have enough of at the moment.

NOTE TO INVESTORS: The latest news and updates relating to Aston Bay Holdings Ltd. (TSX.V: BAY) (OTCQB: ATBHF) are available in the company’s newsroom at https://ibn.fm/ATBHF

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