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Medium term outlook on Zinc July 217 2
Market Recap LME Zinc traded higher in June supported by prevailing supply deficit and declining LME stocks. Other fundamental reasons behind the price direction Weakness in US dollar ILZSG data showing supply deficit in global market Chinese concentrate imports witness fall in April and May Better than expected Chinese economic data outcome suggest improved demand LME stocks have fallen by around 12% in June leading to rise in prices -9-8.5-12 -11.45-15 -14.71-18 -16.2-17.35-21 Consulting Pvt Ltd Jan Feb Mar Apr May Jun Slide -3-6 -1.78 2795 2638-5.61-1.29 264 -.74 2584-2.36 2782 2633-5.35-1.63 259 -.7 2572 Mar Apr May Jun Mar Apr May Jun LME 3M Monthly Avg (USD per ton) -.78 LME Zinc Price trend LME CSP M-o-M (%) Change LME Zinc Cash - 3M Forward spread (usd/t) 3
Zinc Market Analytics
Despite rise in mine output, supply deficit still persists owing to better demand 1 5-5 -1-15 Global Zinc Surplus/Deficit (KT) 54 64 45 6 15-1 -39-3 -2-17 -11-19 -73-64 -92 216 217-11 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Jan Apr 217 Jan Apr 216 Change (%) Global Mine Production 4.269 3.978 7.32% Global Refined Metal Production 4.494 4.423 1.61% Global Refined Metal Usage 4.66 4.443 3.67% Refined Zinc Balance -.112 -.2 *All units in million tons, Source : ILZSG Consulting Pvt Ltd Slide 5
Global refined metal demand witnesses rise despite a fall in Chinese demand Global mine production trends 35 1% 36 34 33 3385 7.3% 5% 35 6.% 3279 331 32 2.9% 34 31 3452 %.9% 3 33 313 3194 29-5% 32 28-5.1% 27-7.4% -1% 31 JFM 216 AMJ 216 JAS 216 OND 216 JFM 217 AMJ 217p Global refined production trends 4.7% 345 4% 3381 3421 2.7% 2% 3562 338 2.% % 329 -.2% -1.6% -3.% -2% -4% JFM 216 AMJ 216 JAS 216 OND 216 JFM 217 AMJ 217p Mine Production KT Growth YoY Refined Production KT Growth YoY 6% 37 36 35 34 33 32 31 3.1% 3277 3576 Global refined consumption trends 3.5% 347 2.3% 351 1.1% 34 3.7% 363 1.5% JFM 216 AMJ 216 JAS 216 OND 216 JFM 217 AMJ 217p Refined Consumption KT Growth YoY 4% 4% 3% 3% 2% 2% 1% 1% % Zinc mine production has risen due to higher output in China, Eritrea, India, Peru and Turkey. Refined metal production remained marginal as increases in France, India and Kazakhstan partially balanced by reductions in Canada, Peru and Korea. Despite a drop in China and Europe usage, refined metal demand has risen due to 42.9% recovery in usage of metal in the US. Consulting Pvt Ltd Slide 6
Glencore s Q1 mine output rises lower than expected due to weather impact 45 4 35 3 25 2 15 1 5 215 216 217 356 374 Glencore Zinc production (KT) 279.2 29 257 249 397 318 35 283 JFM AMJ JAS OND Glencore Zinc production regionwise (KT) 14 124 12 115.6 JFM'16 JFM'17 1 8 56 6 49.1 42.9 48.1 35 4 27 2 Kazakhstan Australia North America Others Although Glencore Q1 mine production witnessed YoY compared to JFM 16, it remained lower compared to OND 16 due to some weather related impacts, including Cyclone Debbie in Australia, flooding in Peru and higher than average rainfall in the DRC and Hunter Valley. Mine production was up 9% YoY due to production rise in NA, SA and Kazakhstan. Glencore has also announced in its latest report that there are currently no plans to restart idled capacity in Australia and Peru. Consulting Pvt Ltd Slide 7
Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Chinese concentrate imports witness moderate rise in Q1 878 Chinese Zinc conc. imports (KT) 73 649 594 41 354 64 4 35 3 25 2 15 1 5 Chinese Concentrates imports vs Price arbitrage 3 25 2 15 1 5-5 -1 OND'15 JFM'16 AMJ'16 JAS'16 OND'16 JFM'17 AMJ'17p imports. KT Arbitrage(Changjiang-LME) USD/ton Chinese concentrate imports seen rising in JFM as price parity remains supportive. However, the rise is lesser than expected amid mine closures in Australia and Ireland. With availability of concentrates likely to improve, TC/RC charges are expected to revive in the coming weeks further leading to import demand. Consulting Pvt Ltd Slide 8
SHMET premiums rise to record high levels as inventories fall 1 8 6 4 2 China refined Zinc net imports (KT) 73 58 45 47 3937 37 37 33 28 3 26 17 15 7 7 9 215 216 217 25 15 28 24 94 7 68 37 24 23 21 15 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec SHMET CIF Premiums Zinc (USD/ton) 2 15 1 5 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Chinese refined zinc production witness fall in JFM 17 compared to last year due to fall in concentrate supplies following the closure of Australia's giant Century mine and Ireland's Lisheen mine in 216 has started impacting the Chinese market. However, imports are seen rising over the last two months owing to higher supply. Also, with LME stocks decline leading to price rise, SHMET premiums have risen to record high levels of around USD 195 in June. Consulting Pvt Ltd Slide 9
Chinese refined zinc production declines amid lower conc. supplies 58 56 54 52 5 48 46 44 42 Chinese Refined Zinc production trends 533 541 56 517 551 555 562 535 51 472 54 474 481 15% 1% 5% % -5% -1% -15% 7 6 5 4 3 2 1 Chinese Refined Zinc Consumption trends 66 589 521 559 595 573 596 556 517 451 542 588 547 15% 1% 5% % -5% -1% -15% Production growth YoY Consumption KT growth YoY Chinese refined supply has fallen YoY terms during much of 216 due a fall in concentrates imports. Refined zinc production has fallen during April and May amid fall in conc. supplies after witnessing a rise in March. On the other hand, zinc consumption, after rising steadily over the past three months has fallen in May. Consulting Pvt Ltd Slide 1
Millions 3-Mar-16 3-Apr-16 3-May-16 3-Jun-16 3-Jul-16 3-Aug-16 3-Sep-16 3-Oct-16 3-Nov-16 3-Dec-16 3-Jan-17 3-Feb-17 3-Mar-17 3-Apr-17 3-May-17 3-Jun-17 3-Mar-16 3-Apr-16 3-May-16 3-Jun-16 3-Jul-16 3-Aug-16 3-Sep-16 3-Oct-16 3-Nov-16 3-Dec-16 3-Jan-17 3-Feb-17 3-Mar-17 3-Apr-17 3-May-17 3-Jun-17 Stocks continue to decline narrowing the forward spread further 51 46 41 36 31 26 LME stock scenario 8% 7% 6% 5% 4% 3% 2% 1% % 5 4 3 2 1 LME stocks vs forward spread 2 1-1 -2-3 -4 LME stocks KT cancelled tonnage to stocks ratio on warrant stocks KT cash - 3m forward spread LME inventory continued to fall with on warrant stock declining to around 7KT levels by the end of June. This has led to tightness in forward spread during June. 2 1 LME Zinc stocks vs price (tons,usd/ton) 3 25 2 While any further decline in on warrant stock shall support cash prices and tighten the spread, reversal in cancelled 15 warrants may keep the contango intact in the forward spread. 1 SHFE Stocks LME Stocks LME Price Consulting Pvt Ltd Slide 1 Aug-13 May-14 Feb-15 Nov-15 Aug-16 May-17 11
Lower exchange inventory scenario leading to price rally in June 5 4 LME Stocks (' tons) Asia Europe USA 25 2 LME Cancelled Tonnage (' tons) Asia Europe USA 3 2 1 23-Sep 21-Oct 18-Nov 16-Dec 13-Jan 1-Feb 1-Mar 7-Apr 5-May 2-Jun 3-Jun 15 1 5 23-Sep 21-Oct 18-Nov 16-Dec 13-Jan 1-Feb 1-Mar 7-Apr 5-May 2-Jun 3-Jun 5 4 LME Open Tonnage (' tons) Asia Europe USA 25 2 SHFE Zinc Stocks ('tons) Cancelled Warrants On Warrant 3 15 2 1 1 5 23-Sep 21-Oct 18-Nov 16-Dec 13-Jan 1-Feb 1-Mar 7-Apr 5-May 2-Jun 3-Jun 23-Sep 18-Nov 13-Jan 1-Mar 5-May 3-Jun Consulting Pvt Ltd Slide 12
Technical Analysis 13
LME Zinc SELECT 3 Month Forward Elliott wave analysis LME Zinc 3 Month forward prices after placing Intermediate wave A at USD 2427 are unfolding in Intermediate Wave B since June 17. Prices are unfolding in an impulsive structure within minor wave a of Intermediate Wave B which is likely to show weakness towards USD 265/263 and turn higher towards USD 29 ahead of turning lower again in coming 2 to 3 months. Consulting Pvt Ltd Slide 14
Price outlook summary Commodity Last Closing (USD/ton) (as on July 4, 217) Range Price outlook summary for next 2-3 months Direction LME Zinc 3- month forward 2787 26 29 Prices are likely to show weakness towards USD 265/26 and turn higher towards USD 29 ahead of turning lower again in coming 2 to 3 month. Note: Prices breaching below USD 255 shall call for further extension of weakness towards prior swing low of USD 2427. Consulting Pvt Ltd Slide 15
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