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BMO Capital Markets: Bullish on Zinc Over the Medium Term

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According to BMO Capital Markets:

https://personal.crocodoc.com/UNwGeVw

Zinc: Bullish Over the Medium Term (How Very Consensus); Takeaways From the MB Zinc Seminar

Summary

- BMO Research recently presented at Metal Bulletin’s 19th Zinc Seminar in Helsinki.

- Overall, the view on both near-tem and longer-term zinc prices was consistent at the conference. The recent run-up in zinc prices is viewed as overdone given market feedback that there is sufficient concentrate and refined inventories. BMO Research notes that zinc prices are at the top end of the cost curve and tend to decline from April through June.

- However, the medium-term fundamentals are positive, with BMO Research’s deficit later than most 2017E, as demand forecasts are slightly lower than consensus. The recent changes to China’s environmental policy are a key driver for BMO Research’s change in view this year from neutral to bullish: China’s mines (30% of global supply) are no longer expected to be able to expand/build as quickly as in previous years.

- In BMO’s view, the key downside risk is inventory levels, which could be higher than the market expects at China’s bonded warehouses, which BMO visited in March. This has negatively impacted nickel, copper, iron ore, and aluminum prices in recent years.

- Separately, BMO Research notes that MMG’s recent guidance from Century is slightly higher than previously forecast for 2015E (see p. 2).