UNITED KINGDOM July 10 2015 3:37 PM
LONDON (Scrap Register): Zinc remains one of our preferred metals, with market deficits likely to continue for the next four years. These four years of deficits will follow on from the previous three years of deficits which has drawn down global inventories. This is in contrast to many other metals such as Nickel, where inventory is still being flushed out.
The supply “cliff” mine closure is however a well-trodden narrative. Despite investor fatigue, we are now only three to six months away from the beginning of the first of these closures which is when Deutsche Bank thinks the market will begin to tighten more noticeably.
This well-trodden narrative and a number of “false dawns” have given rise to a number of Zinc sceptics in the market. One could argue that the recent rally in prices was another of the “false dawns”.
A recovery in the USD notwithstanding, our interpretation is that investors will continue to be drawn to zinc in the absence of other compelling investment options in commodities.
Deutsche Bank expects investors to test the zinc fundamentals by periodically building long positions. Deutsche Bank thinks that 2016E fundamentals are more compelling with a decent mined supply response in 2015E mitigating the decline in the base load.
Deutsche Bank thinks the zinc market is on the cusp of trading higher on a sustainable basis. Given the likely “wait and see” attitude from investors, we see strength into Q4.