Zinc prices have been on a downward trend for several months, and they are expected to remain low until 2025 based on weak demand and oversupply. Even though the output from zinc mining and refining companies is growing, analysts expect demand for zinc to remain weak through the next few years, resulting in a cap on prices.
Weak demand in the construction sector has been a major factor in the decline of zinc prices, with many miners making little to no profits as prices dipped under $2,400 a metric ton and stayed there for prolonged periods. By May 25, 2023, zinc was trading for $2,215 on the London Metal Exchange, its lowest level since July 2020.
Although prices haven’t recovered to the all-time peak of $4,603 per metric ton in late 2006, they have increased to around $2,400. This mild increase was partly due to the decision by Swedish mining company Boliden to put its Ireland-based Tara mine under maintenance and temporarily cease zinc exploration and production. Tara, which was the largest zinc mine in Europe, had negative cash flows due to low zinc prices, increased energy costs, general cost inflation and operational challenges.
Analysts believe that the zinc production market will see more closures if demand for zinc in the construction industry remains lackluster and zinc prices do not increase. Macquarie analyst Alice Fox notes that we could see companies cease operations if zinc prices return to under $2,400 a ton. Zinc mining generally costs around $2,400 a ton with higher costs in most of the zinc mines outside China. Once prices go below this threshold, zinc miners barely break even and essentially bleed money as they continue running operations.
Consultancy firm CRU estimates zinc prices will average $2,750 per ton during the third quarter of the year before decreasing in the fourth quarter, meaning there may be some closures in late 2023.
Zinc is mostly used in construction and combined with metals such as titanium and copper to increase malleability, load-bearing capacity and tensile strength. The global construction industry is the largest buyer of the world’s total zinc output, using more than 50% of zinc production going into construction.
However, demand for zinc from the construction sector has been low in recent years, leading to a surplus of zinc and reducing prices. According to the International Lead and Zinc Study Group, there was a surplus of 137,000 metric tons of zinc from January to April 2023.
If the current numbers are anything to go by, major exploration companies such as Arizona Metals Corp. (TSX: AMC) (OTCQX: AZMCF) may be carefully evaluating their strategic plans so that when an uptick materializes, they will have sites that can produce sufficient amounts of zinc to meet the demand.
NOTE TO INVESTORS: The latest news and updates relating to Arizona Metals Corp. (TSX: AMC) (OTCQX: AZMCF) are available in the company’s newsroom at https://ibn.fm/AZMCF
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