Against the backdrop of “secondary inflation” expectations gradually rising and the mining side continues to be tight, industrial metal prices have all rebounded sharply. LME zinc prices have rebounded nearly 20% from the bottom since February, and lead prices have also risen by more than 10%.
The Zhitong Finance App learned that Minmetals Securities released a research report saying that industrial metal prices all rebounded sharply against the backdrop of “secondary inflation” expectations gradually rising and the mining side continued to be tight. LME zinc prices have rebounded nearly 20% from the bottom since February, and lead prices have also risen by more than 10%. This round of rise is mainly due to the resonance of financial attributes with supply and demand. In terms of financial attributes, interest rate cuts were delayed at the beginning of the year, overseas financial products returned to a state of inflation, and overall financial products denominated in US dollars were strong. At the supply and demand level, the resumption of mine-side production was delayed, TC continued to decline, and production cuts in domestic and overseas smelters reduced the extent of ingot excess. Furthermore, the return of the global manufacturing PMI to the expansion range indicates that the manufacturing industry is beginning to bottom up to drive a recovery in demand.
Minmetals Securities's main views are as follows:
What is the supply and demand situation of lead and zinc?
On the zinc side
Supply side: The main increase on the overseas mining side in 2024 was at Russia's Ozernoye mine, Congo's Kipushi mine, and Mexico's Buenavista mine, with an additional production capacity of 400,000 tons. The domestic Xinjiang Fire Cloud Mine is the biggest increase in 2024, and optimistically expected to contribute 100,000 tons. However, considering factors such as declining grade and low zinc prices, Minmetals Securities anticipates that the actual production of the mining side may be lower than expected; in addition, considering the tight mining side and low smelter profits, it is expected that the smelting side will be delayed.
Demand side: In overseas markets, Minmetals Securities believes that the risk of a recession in the US is low in anticipation of interest rate cuts, but in the Eurozone, against the backdrop of monetary tightening, external demand contraction, and partial withdrawal of fiscal spending, the EU economy is expected to remain weak in 2024, and the risk of recession should not be underestimated. In the domestic market, with real estate-related policies being relaxed and infrastructure demand still resilient, Minmetals Securities believes that the weakening trend in zinc consumption will slow marginally in 2024. According to estimates, the overseas and domestic demand side growth rates for zinc are expected to be 1% and 3.5% respectively in 2024, and the overall growth rate is 2.3%.
On the lead side
Supply side: According to S&P, the overall increase in overseas lead concentrates in 2024 was 166,000 tons, an increase of 5% over the same period, slightly higher than the same period in 2023. However, due to the long cycle of domestic mine commissioning projects in recent years and scattered production capacity, Minmetals Securities expects the overall growth rate of the domestic mining side to be 17,000 tons, and the supply growth rate is 1%; on the smelting side, production of primary lead/recycled lead is expected to continue to increase.
Demand side: On the overseas side, the US policy favors subsidies for new energy vehicles. The Eurozone economy is sluggish, and overall residents' willingness to buy cars is weak; on the domestic side, with traditional sectors slowing down, exports and new infrastructure may become a highlight of lead demand. According to estimates, Minmetals Securities expects the overseas and domestic demand side growth rates of 2% and 2.3% for lead in 2024, respectively, and an overall growth rate of 2.1%.
What do you think of the price of lead and zinc in the future?
In terms of zinc varieties, judging from the zinc supply cycle, Minmetals Securities believes that zinc is currently at the end of the expansion cycle. On the one hand, due to factors such as approaching mining life and declining grade, large mining companies such as Glencore and Tec lowered their 2026 production guidelines, which are down 90,000 tons/260,000 tons respectively from 2023. On the other hand, capital expenditure for global green space projects has dropped significantly after 2020, and the overall development conditions and resource quality of many lead-zinc mines currently under construction and development overseas are not as good as those currently being produced in production mines. Driven by the recovery of global zinc ore production Limited.
In the medium to long term, regardless of force majeure factors, Minmetals Securities expects that after a production release period from the second half of 2024 to 2025, the supply gap may widen from 2026 to open up room for rising zinc prices. In the short term, the price of zinc in Shanghai is expected to be strong between 20,000 yuan and 25,000 yuan in 2024.
In terms of lead varieties, Minmetals Securities believes that the price depends more on the supply side, and the core variable on the supply side is the supply of waste batteries. The current tight supply side pattern for waste batteries has not abated. The recommendation is to focus on tracking changes in waste battery prices. Overall, it is believed that subsequent lead prices may fluctuate in a wide range around 15,500 to 18,500 yuan.
Risk warning: The pace of production capacity release on the mine side fell short of expectations, and ore quality exceeded expectations; overseas economies declined, and demand fell short of expectations.