Fitch's country risk and industry research division said it had revised its forecast for 2020 up from US$2,100 per tonne to $2,200/t, driven by recovery in Chinese demand.

Zinc prices fell by 17.3% over the first three months of 2020, but have since recovered to post new highs for the year. Three-month zinc averaged $2,121/t over the first eight months of the year.

Fitch said it expected China to buoy zinc prices over the remainder of the year and into early-2021, however, it continued to expect a long-term structural downtrend to take hold from 2021 onwards as the industry shifted to sustained oversupply.

The company also flagged slowing global zinc consumption growth. Demand growth averaged 2.2% year-on-year from 2010-2019, and is forecast to fall to 1.1% year-on-year in 2020-2029. The slowdown in consumption growth will keep the market in surplus.

This structural decline will be driven by sluggish growth in global steel production, as galvanising steel is the primary end-use of zinc. "We forecast that after a rebound in 2021, annual steel production growth will steadily slow down in the coming years due to declining capacity increases in China and Europe," said Fitch.

It expects US protectionism of steel will fail to support domestic production growth in the long run, even as Chinese steel production growth slows in the coming years through to 2029 on the back of its economy's structural slowdown. The COVID-19 pandemic has accelerated this process.

Fitch expects the steel market to be in a surplus of 1.1Mt in 2020, compared with a deficit of 16.7mnt in 2019. It expects the surplus to narrow to 200,000t by 2021.