Positive News for Zinc This Morning This morning Glencore...

Positive News for Zinc This Morning

This morning Glencore announced its long awaited zinc production forecast for the next several years. Given the amount of sidelined capacity held by Glencore, the market has been taking any announcements as a signal for the size of the potential market deficits and thus support for the zinc price in the next few years. In our view, the presentation and announcement from Glencore today remains highly supportive of continued strong zinc and lead prices given the slow restart plans outlined.

Follow this link to access the presentation materials: http://www.glencore.com/investors/investor-update-call-2017/.

Glencore has indicated it plans to restart the small Lady Loretta mine in Australia in 2018. This is still not enough, however, to see Glencore’s consolidated production forecast increase in 2018. Its base case zinc production forecast is actually down 30kt in 2018 and up only 200kt by 2020 (slide 17). Given the zinc market is around 13.25MM of annual consumption of zinc metal, normal demand growth of around 3% would suggest annual supply growth needs of 400ktpa or 1.2MM by 2020 before accouting for any lost capacity. As such, We are of the opinion that Glencore’s slow restart schedule and limited material new mine supply expected in the near term should not derail the pending zinc market deficits and should continue to support above average price levels for the next several years, at least.

We also believe most analysts have been using a more conservative outlook and assuming a faster restart schedule for shuttered production. As such, this should only enhance the positive sentiment towards zinc.