Stephan Bogner | Jun 06, 2012 09:25AM ET
After aluminum and copper, zinc is the most-used nonferrous metal in the world thanks to its capacity to protect ferrous metals against corrosion/rusting. Hence, the “infrastructure metal” zinc is mainly used to galvanize/coat iron and steel products, such as vehicles, buildings, bridges, railways and other structures.
Strong Demand Regardless Of Economy
If the global economic recovery progresses in the next years, demand for zinc will increase accordingly. However, even if global economics worsens in the future, demand for zinc is set to be strong due to massive infrastructure projects in industrialized and emerging countries. Additionally, natural disasters such as earthquakes or tsunamis require reconstruction activities that can significantly change demand.
The OECD estimates a yearly investment requirement for worldwide infrastructure projects in the area of $600 billion for the next 20 years -- only to guarantee the provision of water. Additionally, the OECD expects China to spend some $2,000 billion through 2030 on infrastructure only to produce and distribute energy. And such cost-intensive infrastructure developments are not only limited to undeveloped countries. As per the OECD, the USA and Canada must invest around $1,800 billion in its electricity facilities, which is almost as much as China. “The Government of India plans to invest over 1 trillion dollar over the next 5 years to meet the countrys huge infrastructure demands. Over 50% of these funds will come from the private sector.” Any development of infrastructure is highly zinc intensive.
Pricing Outlook
The price of zinc is set to escalate over the next years -- not only because of sound demand dynamics on a global scale -- but also due to a looming chronic shortage of supply. The coincidental closure of large zinc mines (e.g. Brunswick, Century, Lisheen, Skorpion) due to depletion coupled with only a few new mines being developed these days leads to a regressive supply. As we expect demand to remain strong over the next decades (regardless of whether global economics recover or not) and supply to be in a slump, we anticipate much higher zinc prices, especially considering that zinc today sells for around the same price as in the late 1980s and early 1990s.
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