Expanding production, including the return of mines mothballed during the last period of low prices, could see a fall of as much as 30% from a recent US$1.62 per pound ($3,572 per tonne) to $1.30/lb by December, according to recent forecasts.
The slide is expected to continue as supply rises to match demand, with a long-term price of $1/lb reached in 2022, taking zinc back to its 2014 price. This would still be well above the low of $0.65/lb reached two years ago.
Early-warning indications of a slide in the zinc price from its recent status as the best performing metal can be found in a number of areas. This includes comments from a senior executive of Vedanta Resources (LN:VED), which is planning to expand production, and price forecasts from delegates at last week's International Zinc Association conference.
Not a widely-reported event, the IZA conference in Carlsbad, California, was mainly concerned about negotiations over zinc processing costs such as concentrate treatment charges.
Macquarie Bank, which sent a delegate to the event, said after the supply cutbacks that flowed from mine closures during several years of low prices, the zinc market had now entered what it called "phase two" - a deficit of refined metal that saw more than 500,000 tonnes of ingot drawn last year from stockpiled material.
Notoriously difficult to measure accurately because zinc can be stored for a long time, and because of uncertainty about stocks reportedly held on metal exchanges, the decline in global zinc stocks is best seen through the official data of the London Metal Exchange.
Over the last 30 days, the LME reported that zinc held in its warehouses had fallen by 16.7% from 179,000t to 149,000t, a steep fall in a short time and a continuation of a decline that started five years ago when stocks stood at a whopping 1.2 million tonnes.
The stockpile decline, which accelerated sharply 12-months ago, has been matched by a price increase over the same time from $1.10/lb to a recent peak of around $1.63/lb.
Vedanta, one of the world's biggest zinc producers, was the first to break ranks with the rest of the mining industry, revealing plans to boost production to capture the current high price.
Deshnee Naidoo, chief executive of its Zinc International division, told Reuters recently that the company might accelerate expansion of its African zinc operations.
She said she was bullish about zinc prices and about South Africa after Cyril Ramaphosa came in to replace Jacob Zuma as president last week.
"Some of the aged mines are starting to close, demand is growing," Naidoo said. "The market is in deficit for both zinc concentrate and metal."
Vedanta is in the process of bringing on new production at its Gamsberg mine in the Northern Cape region of South Africa with full annual production of 250,000t expected to be reached in about 12 months.
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