I have been involved in base metal markets for over 20 years and the one common refrain I regularly hear is along the lines of “LME stocks are declining so the zinc (or lead, copper etc) price will soon move up”. The inference is that there is an inverse correlation between LME stocks and the zinc price. There isn’t, as can be seen in the charts below.



Charts Courtesy Kitco Metals

Zinc consumption in 2017 was 14Mt worldwide. At the end of 2017 LME zinc stocks were 0.18Mt. It is not material to world zinc consumption, and therefore price, if zinc stocks are 0.12Mt or 0.25Mt, the LME range over 2017.

It is much more important to look at trends in supply and consumption. For example, the current trade wars have lead to uncertainty which in turn has caused a reduction in demand. Against this, a new market is opening in fertiliser. The Chinese government has mandated that all fertiliser must include a little zinc, as it has a beneficial effect upon crops’ health.

Regarding supply, around 10% of supply has shut down over the past year or so, due to mine closures. This supply has yet to be replaced by the opening of any significant new mines. This suggests that any growth in demand could quickly run up against supply shortages.

In conclusion, supply tightness in the years ahead will lead to a rising zinc price, unless substantial new mine production comes on stream. Irrespective of what LME stocks are doing.