The Good News Continues For Zinc

As I’ve discussed recently, zinc is one of the few metals seeing some excitement today.

A number of high-profile sources have singled out zinc as having the best fundamentals going in the base metals complex. Based on upcoming major mine closures in places like Canada and Australia. As well as falling production of by-product zinc from precious metals mines.

It appears this weeks that it’s not just the supply side that’s looking bullish. Zinc demand may also be considerably stronger than expected.

That’s because one consuming nation is using a lot more of the metal than previously expected.

Japan.

Major Japanese zinc producer Mitsui Mining & Smelting said this week that in-country demand is exceeding expectations. In an interview with Bloomberg, the company’s general manager Osamu Saito said that Japanese government stimulus is causing a surprise surge in zinc usage.

“The domestic market has been better than we had expected as demand increased, especially from the construction and equipment industries and for solar projects,” noted Saito.

Mitsui is thus selling more zinc to local buyers. A factor that will unexpectedly cut the company’s exports of the metal for the current fiscal year (which runs until March 2014).

Overall, Mitsui said it now expects to export only 110,000 metric tons of zinc for the fiscal year. Down 27% from the previous forecast of 150,000 metric tons. And 13% less than the 126,000 metric tons the company exported during the previous year.

Few observers were expecting a “blasé” economy like Japan to soak up this much zinc. The news should thus give another boost in sentiment–and fundamentals–for the metal.

All of which continues to point to a resurgence in this market.

Such a move up is still theoretical–with the metal currently trading at its lowest price since early October, at just over $0.83 per pound. We haven’t yet seen a price surge since the bullish reports started emerging six weeks ago or so.

But it’s certainly worth keeping an eye on this space. Usually when good news (or at least expectations of such) starts compounding the ways it has been for zinc, it’s only a matter of time until the market reacts.

Here’s to a bright spot in the metals complex,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

 

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