The global base metals market is underperforming in the face uncertainty in the global economy. In particular, factory activity in China is weak and Germany factory orders just added to the growing fear of an impending recession.
Zinc prices down
A slowing global economy is to blame for the sideways meander of the prices of base metals. To be sure, the US China has done little to inject confidence in a change in direction of global economy growth. But analysts predict that soft US jobs data might persuade US President Trump to tone down and pursue an amicable deal with China.
In light of this, three-month base metals prices at the London Metal Exchange were in the red in the Friday morning trading sessions. Broadly, the prices had dropped by an average of 0.3%. In particular, Zinc was down 0.3% to $2420.5 per ton.
The same is true for the prices on the Shanghai Futures Exchange. With the exception of August aluminum which was up by 0.4%, the broad market was down. Particularly, August zinc slid 1.3%, which turns out to be one of the largest margin slumps.
If Zinc and the broad base metal prices close Friday in the red, this will mark a trend which began entrenchment on Thursday July 4, 2019. To be sure, benchmark zinc slid 1% to settle at $2,425 per ton on Thursday amid a supply glut from China. If the trend continues, the benchmark zinc price is on track to breach the five-and-a-half low of $2,412 established in June.
Zinc is under threat in Canada
According to the International Lead and Zinc Study Group (ILZSG), the global zinc market is on the verge of closing the existing supply deficit. During the first four months of 2019, ILZSG noted that the deficit was in the region of 97,000 tons.
But Chinese output has grown substantially in the last two months with the country producing 7.4% more zinc in May 2019 than the same time last year. Further, the global zinc production is holding strong, being at around 13.5 million tons annually by the most recent estimations.
Canada too could be on the track to ramp up its zinc production. This growth could be lifted by upcoming mining projects by miners. To be sure, Shine Minerals Corp. (CVE: SMR) is among those miners who are set to boost Canada’s zinc output.
In a recent press statement, Shine Minerals confirmed the mineralization of the Borys Lake Main Zone. The company revealed seven holes which were under study were confirmed to hold up to 21.3% Zinc. If the mining process begins, this could mark a comeback by miners in an industry which has faced mine closures and other problems in the past.
But all could not be well in Canada’s zinc market if a recent report is acted upon. Dubbed Draft Screening Assessment for Zinc and its Compounds, the report sought to examine the harmful nature of zinc to the environment.
The broad conclusion of the report was that the metal is especially harmful to aquatic life. As such, the government could add the metal to schedule 1 of the Canadian Environmental Protection Act (CEPA). In this case, the industry will face tough regulatory measures which could harm productivity.
Zinc is a valuable base metal which is critical in infrastructure projects. Any disturbance in the global trade destabilizes the demand and supply of the metal. In the last three months, Zinc prices have been falling consistently, mainly due to the tensions caused by the US-China trade war.
A truce in sight
After a year of push and pull and tariff imposition, there seems to be a truce building between the world’s largest economies. This year’s G20 meeting between President Trump and China’s Xi Jinping appears to have helped mellow the rhetoric around the trade war. To be sure, the two leaders agreed to resume talks and end the debacle soon.
For a long time now, the trade war has impacted global growth, with few infrastructure projects being initiated. Further, the trade war spat seemed to have weakened the manufacturing PMI of China.
Between March 2018 and February 2019, China’s manufacturing PMI dropped to a little under 49.5 from 51.5. Being a heavy user of zinc and other base metals, the demand for these metals sunk. Subsequently, their prices dropped significantly.
Zinc prices hit
In particular, zinc has seen a considerable price slump between early May and mid-June 2019. On London Metal Exchange (LME), zinc futures dropped from over USD 2700 per metric ton to just above USD 2400 per Mt. At the same time, futures on the Multi Commodity Exchange of India (MCX) dropped from Rs 220 to Rs 205 in the same period.
The slump in prices was mainly the result of the trade war which had threatened to grind global trade to a halt. To be sure, the tariffs which China and the US had imposed on each other primarily affected manufacturing. Also, the two economies have produced weak economic data in the last year, signaling a slowing growth. It has adversely impacted the global zinc market.
Inventories down, production levels set increase
Nonetheless, the demand for the base metal is on the rise. To be sure, the International Lead and Zinc Study Group (ILZSG) noted that there was a 15,000-ton deficit in the zinc market during Q1 2019. In a similar period in 2018, there was a 37,000 tons surplus.
ILZSG further noted that LME-approved warehouses were experiencing depleting inventories. To be sure, inventory levels dropped 60% from August 2018 to 100,150 in June 2019. As such, there could be a shortage at the LME due to higher demand, and this could boost the price of zinc.
Also, the production levels of zinc are on the rise. Mainly, GlobalData statistics show that production slumped between 2012 and 2018 due to cases of mine closures and production cuts. However, growth in new zinc mining projects after 2018 will see the market grow at 3.8% in 2022.
Significant companies like SHINE MINERALS CORP. (TSX.V:SMR) are also reporting mineralization of their drill programs. In a press statement, the Canada-based company revealed that the seven holes under investigations returned encouraging results.
As per Ross McElroy, President of the company, “The initial results from drilling at Watts Lake are very encouraging, with all seven holes hitting mineralization, including intermittent mineralized intervals as wide as 43m.”
Shine Minerals Corp (CVE: SMR) Focused on Watts Lake Project As Global Zinc production Increases
Zinc production is showing signs of edging high after years of cuts around the world. Data by analytics firm GlobalData suggest that production could increase by as much as 3.8% between 2019 and 2022. Amidst the expected growth inventory, levels are still at a 10-year low after a 900% decrease to 100,000 tons a year. Shine Minerals Corp (CVE: SMR) is one of the companies looking to take advantage of the enormous market deficit.
Zinc Production Increase
Zinc production is on the rise thanks to new mines coming into operation in various parts of the world. New zinc mines coming online in China, India, Mexico, and Canada supports a possible reduction in the Zinc supply deficit.
“After declining substantially in 2016, global zinc mine production increased in both 2017 and 2018, reaching 13.2Mt and 13.4Mt respectively. However, the market has remained in a severe deficit, impacted by several mine closures and production cuts over price concerns,” explained mining analyst at GlobalData
Global zinc production was up in 2018, as Australia experienced a 9.9% increase. Zinc production in Peru was up 8.5% as India registered a 5.9% increase. Amidst the rise, production levels are yet to reach a level that will be able to address growing market demand. Zinc demand in China, Germany, U.S, and Belgium has been on the rise.
Shine Minerals Watts Lake Project
A surge in demand does not come as a surprise. Zinc is the most widely consumed metal, as it is used in alloys such as brass, nickel, silver, and aluminum solder. Sensing a window of opportunity with the ever-growing demand, Shine minerals have ramped up operations at it is prospective Watts Lake Project.
The exploration and mining company has already hit mineralization in seven holes as part of a drill program at the Watt Lake Zinc project. All the seven holes intersected mineralization with holes WL19-006 (line 050W) and WL19-005 (line 050W) crossing at intervals of 43m and 31.8m. The company is currently exploring the possibility of a winter drill campaign that will seek to test for additional mineralization.
The drilling comes hot on the heels of a successful sampling program that targeted historic trenches and uncovered multiple areas of high-grade zinc-silver and lead mineralization. High-grade silver mineralization associated with zinc and lead affirms the potential of the Watts Lake Project.
Watts Lake Project is Shine minerals flagship zinc project sitting on a contiguous land package covering 13, 248 hectares. Located in the deposit endowed La Range Domain on Saskatchewan, the land package includes multiple parallel basement conductive corridors. A number of companies led by Claude Resources in the 1990s have carried out exploration works at the property.
Development of the Watt Project is Shine minerals top priority in the wake of actual mineralization data from the seven drilled holes. While demand for zinc is on the rise, the company must move with speed as up to 100 zinc projects could commence operations between now and 2022. Up to 24 zinc projects are currently construction and the remaining ones under various stages of development.