Recently, Nyrstar, the world's largest zinc smelter, announced that European refineries will cut production by up to 50%. The global zinc price soared, and the London zinc price rose by more than 20% weekly, breaking the record of the largest weekly increase in history, and also breaking the 14-year highest since 2007.
Prices of copper and aluminum also skyrocketed. On Friday night, the Shanghai aluminum index rose as much as 1.5% to a record intraday high. Copper in London rose more than 9% last week, pushing prices back above $10,000 a tonne. Goldman sachs said copper is the most undervalued commodity at the moment and that the market is ignoring a major factor of inventory drawdown and that prices are likely to continue rising.
Zinc is a silver-white slightly light blue metal, chemical properties lively, when the temperature reaches 225℃, zinc intense oxidation, zinc is widely used in iron and steel, metallurgy, machinery, electrical, chemical, light industry, military and medicine and other fields.
According to agency data, in 2020, Europe refined zinc output of 2.41 million tons, in addition to Nyrstar, Glencore zinc output of 800,000 tons, Tektronk 300,000 tons, Boliden about 500,000 tons of smelting capacity, but the global energy price skyrocketing, resulting in a rapid rise in smelting costs, smelting enterprises' profits are threatened. Institutions forecast that if energy prices remain high in the fourth quarter, other large factories may continue to reduce production, zinc prices are expected to continue to rise.
At home, zinc is also facing production cuts. According to dayou futures analysis, zinc smelting industry in Hunan, Yunnan, Guangxi and other regions has the problem of production reduction, production limit in 20%-40%, according to the National Bureau of Statistics, Hunan, Yunnan and Guangxi zinc production accounted for about 42% of the country's total output.
In addition, low global zinc inventories are also an important factor supporting the price surge.
In 2020, Among the world's zinc importers, China will import the largest amount of zinc, with annual imports reaching 2.9 million tons, accounting for 40% of the total demand. If zinc prices continue to soar, it will have a great impact on China's domestic price system.
Institutional personnel forecast, affected by the power, energy crisis, supply side production reduction coupled with low inventory, led by copper, zinc, aluminum industrial metal prices will continue to remain high.
A cautionary note is that industrial metals prices have historically been closely linked to inflation, and a sustained surge in prices of key metals such as copper, zinc and aluminum would further fuel global inflation, which is likely to continue at least through this year's Northern Hemisphere winter and early 2022.
Among the major industrial metals, copper and aluminum prices have also skyrocketed.
Copper stocks on the spot market are now falling fast, down almost 40 per cent in the past four months. Global copper inventories are likely to reach record lows by year-end and are expected to run out in the second quarter of 2022 if prices continue at current levels. The decline in inventories, coupled with the need for futures contracts to be delivered, will further reduce copper supply, which will eventually lead to higher prices.
At the same time, Haitong International issued a research report said that as of October 8, the last period of copper cathode stocks recorded a total of 50,062 tons, down 78.2 percent from May 14 high of 229,179 tons. Based on China's refined copper consumption of 14.23 million tons in 2020, this inventory is equivalent to less than 2 days of refined copper consumption in China, indicating that domestic explicit inventory is already in a very tight situation.
London copper's backwardation reached its highest level in almost a decade as global inventories fell. For Trafigura Group, the world's largest copper trader, confidence in the outlook for copper prices remains as global inventories run low, despite the growing risk that an energy crisis will hit manufacturers, but supply has so far suffered more as the number of energy-intensive smelters has dwindled.
