This year has already seen the price of one base metal skyrocket higher – nickel. It hit a 27-month peak recently, north of $21,000 per metric ton (mt).
Now Zinc – a base metal that’s been priced low for many years – might be positioned for a sharp price rise.
Why? It’s simple supply/demand at work.
We have demand increasing, thanks to a combination of rapidly rising vehicle sales in emerging economies – along with a resurgence in automobile sales in the developed world.
Construction activity in China – which drove up demand last year by 7.6% – isn’t slowing down, either. (China accounts for about half of total global consumption of zinc.)
The supply side of the equation is where things get really interesting, though…
The Incredible Shrinking Zinc Supply
Due to low prices, companies just aren’t investing in new zinc projects.
Indeed, no one has made a world-class zinc discovery since the mid-1990s, and that’s not expected to change in the foreseeable future.
Additionally, many large zinc mines from around the world are closing, due to high costs and mineral exhaustion.
Some major mine closures include:
- The major Brunswick and Perseverance Mines in Canada last year, which are owned by Glencore PLC (GLNCY).
- One of the largest zinc mines in the world – the Lisheen Mine in Ireland, owned by Vedanta Resources PLC (VED.L).
- And the world’s third-largest zinc mine – the Century Mine in Australia, owned by China Minmetals, will cease production next year.
All of this is adding up to a massive zinc supply shortage.
The Looming Zinc Shortage
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Out of the 13 million metric tons (mmt) on the market, about 1.5 mmt in supply will be gone.
Overall, analysts forecast a zinc deficit this year of 120,000 mt. Quite a contrast from an oversupply of 375,000 mt (which was as recent as 2011).
Thanks to high inventory levels of zinc held at the London Metals Exchange, however, zinc prices haven’t budged.
But with zinc inventories at their lowest level since the fall of 2011 – currently around 735,000 mt – that’s about to change.
Indeed, Daniel Maté, head of zinc trading at Glencore told an investor in September that “more than one million tons of new supply is needed by 2016.”
Unfortunately, for investors looking to play the coming zinc supply crunch, there‘s no pure-play zinc ETF in the United States.
The Powershares DB Base Metals Fund (DBB) comes closest, with one-third exposure to zinc. The remainder is divided evenly between copper and aluminum, which I’ve also recommended.
On the stock side, a good choice is Glencore. Despite the closure of some of its mines, the company will remain the world’s largest producer of zinc. Not to mention that it’s one of its largest worldwide traders.
Founder, Robert Williams, recently recommended another solid play to WSD Insiders. Out of fairness to our paid subscribers, though, I can’t release the ticker at this time. To get more information, you can upgrade your subscription to Insider status by going here.
We’ll have to wait and see, but it looks like zinc may join nickel in becoming the next big “base metals star.”
And “the chase” continues,