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News And Analysis Metals The Top Factors that Move the Price of Zinc

The Top Factors that Move the Price of Zinc


BY CRAIG ADEYANJU ON TUESDAY, NOVEMBER 18, 2014

Zinc is the fourth most used metal after iron, aluminum and copper. It has
been in use since the 10th century BC in Judea. Its first appearance was in
brass, which is an alloy of copper and zinc. Zinc is an essential mineral,
which is of great importance in biology and public healthy. Reports have it
that about two billion people in developing world and is associated with
many diseases. This shows just how important zinc is to the world. Here,
well discuss the top factors that move the market price of zinc.
Economic outlook

Well, the state of the economy affects just about anything. However, since
zinc isnt considered a safe asset, it is has a direct relationship with the
economy. This means that in bad economies, the zinc market would find it
difficult to perform. In fact, in most cases, a decline in zinc prices
accompanies a decline in the state of the economy. The highlighted part of
the chart above represents the last recession. And as we can see, the
price of zinc went further lower during that period. In the same stead
albeit on the short-term economic outlook affect the price of zinc. This is
one of the things that can cause prices changes within trading sessions.

While an improving economy is also able to drive zinc prices up, the
impact isnt quite as huge as the impact of a declining economy. As the
chart above shows, even after the recession, prices didnt go up as high as
it was before the recession.
LME zinc stock levels

Traders also want to know whats happening to zinc stock levels monitored
by the London Metal Exchange, or LME. Over the years, this has proven to
be the biggest driver of zinc prices in recent times. The chart above
makes it all clear. It shows that stock levels started dropping in 2006 until
it reached a lowest point in 2007. This movement led to an almost
equivalent increase in the price of zinc.
Here is another instance to support this point. Financial Times reported on
July 14, 2014 that the price of zinc reached its highest level in about three
years partly as a result of falling warehouse stocks. To confirm the close
relationship between stock levels and the price of zinc, FT continued by
acknowledging that stock levels had fallen to a three-and-a-half year low
of about 660,000 tons before rising to the a three-year high. These
instances tell us just how important LME stock levels are when predicting
the price of zinc.
Demand outlook
The demand outlook of zinc is also capable of moving zinc prices. Here
you would want to focus on two main markets. The healthcare market is
the first place to look. The second place to look includes industries where
zinc is used as an anti-corrosion agent. As you might expect, predictions

about high demands from these markets would push prices higher. On the
other hand, predictions about low demand from these markets would push
prices lower. These changes in price would be instigated by the fact that
traders would make moves that allow them profit from the predictions.
Demand outlook in certain geographic locations could also move zinc
price. China, which would be covered below, is a good example.
Supply outlook

The second factor that FT attributed rising zinc prices to in the story
referenced above issupply outlook. The website says that a series of key
mine closures is causing a structural change in the market. This means
that a deficit is on the horizon. According to a Seeking Alphaarticle, the
price of zinc is going to rise even higher because, Australia's largest
open-cut zinc mine Century Zinc will close in 2015 and another mine,
Lisheen in Ireland, is also set to close next year [2015].
Apart from global supplies, you also want to consider supply outlook in
countries that supply the most zinc. Here you want to check for supply
outlook in Iran, Australia, Canada and US since they produce more zinc
than other countries.
Demands from China
As with many industrial metals, China is the most important market for
zinc, as the country is its top consumer. According to Financial Times,
China accounts for more than half of global zinc consumption. This means
that the demand outlook in China would always bear significant effect on
the price of zinc. A good place to look for what Chinas zinc demand
outlook might be is Chinas Purchasing Manager Index. Whenever its on
the rise, analysts tend to predict that the demand for zinc would rise,
which is likely to drive prices high.
In addition, you might want to take a look at Chinas power consumption
data. It is also an indicator regarding how much production China is doing.

Besides, considering that zinc also finds its application in batteries, which
quite contribute to power consumption, a bit more information regarding
the demand outlook of zinc in china could be gotten here.
Demands from developing countries/emerging economies
There are a number of ways to look at this factor. Being an industrial
metal, its demand outlook in emerging economies, like China and India,
would normally move prices. This is because a growing economy is always
accompanied by improved industrialization and urbanization. With these
economies yet to reach their peak, there is a feeling that the demand for
zinc, like any other industrial metal, is quite about the minimum possible.
Therefore, as these economies become more industrialized and urbanized,
the demand outlook in these economies improve, which could drive prices
upward.
Here is the second way to consider this factor. If youd refer to the start of
the article, I said zinc is an essential mineral and that it is responsible
for the death of several children in developing countries. With about two
billion people in need of zinc in the developing world, you can expect that
the demand for zinc in these regions would increase significantly going
into the future. And this would work to push zinc prices higher.

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