Photographer: Meridith Kohut/Bloomberg

Goldman Singles Out Zinc as ‘Bullish Exception’ Among Metals

  • Bank raises price outlook for next year as China demand rises
  • Global deficits forecast this year, 2017 after mines depleted

Zinc stands alone, according to Goldman Sachs Group Inc. The New York-based bank has raised its forecasts for the next year on tightening supply and robust demand in China, highlighting its positive prospects in contrast to the “very bearish” outlook seen for all other base metals.

The six and 12-month forecasts were boosted to $2,100 a metric ton from $1,700, while the three-month call rose to $2,000 from $1,800, analysts including Max Layton said in a May 19 report. Zinc for three-month delivery was at $1,868 a ton on the London Metal Exchange on Thursday.

“We view zinc as the bullish exception in the metals space, and remain very bearish on the outlook for the other base metals prices, most notably copper and aluminum, where we see very strong supply growth” in the second half, the analysts wrote. “Zinc has by far the most bullish supply-side dynamic.”

Goldman’s endorsement adds to a chorus of bullish forecasts from producers amid expectations that global supply will trail demand. Commodity giant Glencore Plc said this month that structural deficits are now returning, led by zinc, while Vedanta Ltd.’s Tom Albanese said in April that zinc had the best fundamentals of any LME metal. Zinc, used to galvanize steel, will get a boost as China spends more on infrastructure, two major mines were depleted and some producers cut supply, according to Goldman.

‘Most Exposed’

“Zinc is the most exposed base metal to Chinese infrastructure,” the analysts said, raising their forecast for demand growth in Asia’s top economy to 3 percent from 0 percent. Higher prices are needed in order to incentivize a sufficient, and substantial, response in supply, they said.

Zinc has rallied 16 percent this year on the LME, beating the five other major metals. Goldman saw a 3.2 percent decline in global mine supply this year as consumption climbed 1.9 percent, triggering a deficit of 114,000 metric tons. The shortfall will increase to 360,000 tons in 2017, the bank forecast.

China’s infrastructure spending rose 19 percent in the first four months, according to the National Bureau of Statistics. Goldman, which estimated that a quarter of zinc demand comes from the sector, estimated that China had accelerated spending on the segment by the the biggest amount since its response to the global financial crisis, according to the report.

— With assistance by Winnie Zhu

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