Global zinc concentrate inventories first reached critical levels in 2017 Q1, leading to Chinese smelter utilisation rates falling below 90% and remaining at depressed levels since.
Without much buffer zinc concentrate stock remaining, the relationship between mine supply and Chinese smelter output has continued to strengthen. A key consideration (and uncertainty) for the global concentrate and metal market over the course of this year and next is to what degree Chinese mine supply recovers.
CRU’s base case sees smelter utilisation rates improving from 2018 H2 through the end of 2019 as robust mine supply growth from the rest of the world and modest (3.8% in 2018, and 4.7% in 2019) growth from China supports rising concentrate availability. In this Insight, CRU stress tests the global concentrate (and metal) market against a scenario of falling Chinese mine supply over the next 18 months. In effect, we identify the required shortfall of Chinese (or indeed ex-China) mine supply to affect genuine tightness in global metal markets. While we consider this scenario unlikely, such an outcome (all else being equal) would drive further metal deficits through 2019 as smelter utilisation rates in China would remain below 90%. Such a scenario would see metal stocks fall to levels not seen since the 06/07 price spike.