Zinc’s price has slumped by more than 30% since reaching a year-to-date high of $4,460 /t on 19 April. As concerns grew over the global macroeconomic outlook, investors took flight from copper and the rest of the LME metals – and prices fell across the board. Zinc’s fundamentals remain constructive, with exchange stocks close to an all-time low and a refined market deficit of 245,000 t this year. But fears that inflationary pressures will lead not just to a slowdown in global demand but perhaps a recession, have soured investor sentiment.

► CHANGES SINCE APRIL 7

► STORYBOARD 8

Zinc's price fall belies a tight refined market 8

► EXECUTIVE SUMMARY 9

Zinc's price pummelled as recession fears loom 9

► DEMAND: RECENT DEVELOPMENTS 11

Demand weakened further in Q2 and risk of recession has increased in some countries 11

► DEMAND: OUTLOOK 13

► DEMAND: RISKS TO OUTLOOK 14

► CHINESE DEMAND: RECENT DEVELOPMENTS 15

Chinese demand contracted again in 2022 Q2 15

► CHINESE DEMAND: OUTLOOK 16

► CHINESE DEMAND: RISKS TO OUTLOOK 16

► MINE SUPPLY: RECENT DEVELOPMENTS 17

Covid-19 and flooding impacted 2022 Q1 output 17

► MINE SUPPLY: OUTLOOK 18

New mines and expansions to offset output decreases 18

      2021 Chinese mine supply growth revised down to 2.0% y/y 21

      Chinese mine supply to edge up 0.8% y/y in 2022 22

      2022 Q1 beset by several production issues 25

► CHINESE REFINED SUPPLY: RECENT DEVELOPMENTS 28

Shortage of zinc concentrate caused 66,000 t of refined production loss between January and July 2022 28

► CHINESE REFINED SUPPLY: OUTLOOK 29

hinese effective zinc smelting capacity expected to grow to 7.7 Mt by 2026 29

► CHINESE REFINED SUPPLY: RISKS TO OUTLOOK 31

► MARKET BALANCE: CONCENTRATES 32

Concentrate stocks expected to build over forecast period 32

TCs forecast to fall before increasing again 32

► MARKET BALANCE, STOCKS AND PREMIA REFINED METAL 33

Refined market deficit to reach 245,0001 in 2022 33

► PRICE OUTLOOK 35

Zinc's price decline will be reversed as high energy prices lead to smelter disruption in H2 35

LIST OF TABLES

Table 1: Key changes since April ('000s tonnes zinc unless otherwise stated) 7

Table 2: Major decreases in 2022 Q1 ex. China refined zinc output 25

LIST OF FIGURES

Figure 1: Zinc's price is still expected to decline over our forecast period 7

Figure 2: Large surpluses will build towards the end of our forecast period 9

Figure 3: Price forecasts have been downgraded since our April Outlook 10

Figure 4: Global demand growth weakened in Q2 11

Figure 5: US vehicle output ticked up in Q2; architectural billings remained strong 12

Figure 6: Italy construction activity softened in April; automotive output still weak in June 12

Figure 7: Global zinc demand growth expected to decelerate from 2023 onwards 13

Figure 8: China' auto output picked up in May-June and its PMI returned to growth in June 15

Figure 9: China's zinc demand forecast to increase by 0.5 Mt in 2022-26 16

Figure 10: Mine output reductions outpaced increases in production in 2022 Q1 17

Figure 11: China accounted for the largest increase in output in 2022 Q1 18

Figure 12: Global mine production forecast to reach 13.76 Mt in 2026 19

Figure 13: A high disruption allowance offsets most of the potential increase in 2022 22

Figure 14: The majority of mine growth in 2022 is from small-medium sized mines 23

Figure 15: Chinese mine supply forecast versus potential 24

Figure 16: Ex. China smelter capacity to increase by 565,0001 from 2021 to 2026 26

Figure 17: Global smelting capacity forecast to reach 17.38 Mt in 2026 27

Figure 18: Chinese smelter disruption has led to loss of over 135,0001 zinc by July 2022 28

Figure 19: 22 Chinese smelter projects will contribute 1.64 Mt potential capacity additions 30

Figure 20: Chinese zinc smelting capacity growth are expected to slow down in 2025 31

Figure 21: Smelter revenues will increase in 2022 with higher zinc prices and TCs 32

Figure 22: European premia fell from peak & global stocks declined in Q2 33

Figure 23: USA has been attracting zinc exports from Asia 34

Figure 24: The refined market will switch to surplus in 2024 34

Figure 25: Sell-off across LME metals; SHFE/LME arb narrowed 35

Figure 26: Zinc's price will need to fall to rebalance the market 36

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