Episode Details

Before we begin today’s piece, a quick reminder for those who might find themselves in the Scottish neck of the woods this August, I am doing a show at the Edinburgh Fringe all about gold.

It’s from August 4th to 20th at 2pm. Please come if you are in town- you can get tickets here.

Plus an added bit of history: it takes place in the room in which Adam Smith wrote Wealth of Nations. Hopefully, I will see you there.

And, if you would like me to speak at your event or to advertise on these pages, please drop me a line.

Copper, they say, is the metal with a PHD in economics. Gold, eternal and indestructible, will protect your wealth. It might even give you safe passage into the afterlife, at least that’s what the Ancient Egyptians thought. 

Zinc, on the other hand, stinks.

That is the cruel verdict the poets of the investment world have bestowed on zinc, and there is plenty of truth to the maxim. In the spring of 2022, zinc was flirting with $4,500 a tonne. Here we are 14 months on and the price is down $2,000 - $2,400/t at time of writing. Not only does zinc stink, it sinks.

It’s a story common among metals, but zinc really has been bad. Amongst LME-traded metals only nickel has been worse.

China’s post-Covid bounceback was supposed to herald good times for metals investors. No such luck. Global demand for zinc fell by 4% last year, led by a decline of 6% in Chinese demand. 

The International Lead and Zinc Study Group (ILZSG) forecast supply shortfalls of 150,000 tonnes last October. For the first four months of 2023, it has just reported that the global market for refined zinc was in surplus by 138,000 tonnes. That’s probably why the price of zinc keeps sinking.

Zinc stockpiles at the London Metals Exchange (LME) were low at the start of the year, equivalent to less than two days' worth of global consumption.  While stockpiles are low, there is always a chance of supply shortages and then price spikes, but they have since quadrupled and spreads suggest further inventory is expected. It is hard to be bullish when there is no shortage of supply and no unusually large demand.

Here, for your information, is a chart showing 50 years of zinc prices. 

That said there is a clear long-term trend since 2000 of higher lows.

Just over $4,500/t was the all-time high in 2008, during a decade in which all raw materials boomed. 

You can see the barren commodities depression of the 1990s, by the end of which zinc had slid to $750/t; the incredible boom of the 2000s; more depression between 2011 and 2015.

2016 and 2017 were good years for zinc - by then there was a considerable shortage in supply. Exploration and development budgets had been slashed almost to zero, and there were genuine shortages of the metal.

Things turned down again in 2018, leading to an eventual low in 2020 at the height of the Covid panic below $2,000/t. It fell pretty much in tandem with emerging markets, as is often the way with commodities. 

Much of zinc’s poor performance can be explained by its ties with steel. Zinc was caught in the crossfire of trade wars and, in particular, the tariffs on steel products. 

Coming out of 2020, however, it had a bonanza run, eventually peaking in early 2022 with quite some spike, caused by Vladimir Putin’s invasion of Ukraine. We were back near $4,500/t. Since then we have been in near free fall. It would appear the 2020 Covid-19 lows at 2,000/t are beckoning again.

Around $2,400/t, however, most mines do not make money. Many actually lose.  A prolonged period around these levels will trigger outp