Even the anemic and often forgotten E.U. put up GDP of 2.2% in Q2, compared with the same quarter of last year.
Naturally, this widespread economic growth is bullish for base metals and is resulting in multi-year highs for many.
A few weeks later,
on June 19th, as the price of zinc hit a multi-month low, we urged our subscribers to look closely at the base metal's fundamentals. In
Investors Miss Out While Majors Acquire, we wrote that,
"Zinc, the fourth most mined metal in the world, has seen its demand steadily increase for decades. The metal is primarily used to galvanize steel, but its use in agriculture as a fertilizer to increase the productivity of soil has increased markedly in recent years. New potential applications in renewable clean energy batteries add a blue sky component to the demand side as well..."
And that,
"As more people consume greater quantities of resources every year, the search for profitable zinc mines will intensify."
Our article broke down the world's top 4 zinc mines to come online and highlighted that they are all located outside North America.
To learn about the four mines being upgraded and brought online, as well as the supply and demand fundamentals surrounding the zinc market,
click here.
N.B. One caveat to rising zinc prices is Glencore. The Swiss commodity behemoth is a producer and trader of the metal. The company announced significant zinc production cuts in 2015. If Glencore reactivates even some of its offline capacity, it could send a temporary shockwave to the market.
China | Still Driving Force for Zinc
For many industrial metals, the developing world, specifically China, accounts for the bulk of demand. CNBC reported on May 19th that,
"China's refined zinc output marked its lowest in more than two years in April as the impact from the closure of major mines in places such as Australia and Ireland stifled the concentrate supplies China relies on to churn out finished metal.
The nation's 'war on pollution' has also curbed output as Beijing clamps down on mining and heavy industry in a drive to clear its skies."
Our mid-June report was a prescient warning given this week's major headline about zinc.
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| China's poor air quality has tarnished its economic brand globally and created domestic health concerns which the government fears could spark an uprising. With the desire of being viewed as a leading, modernized, renewable energy focused nation, China is aggressively cracking down on antiquated mining practices. This has led to dozens of mine shutdowns and disrupted global supply for several commodities. Image: Shanghai skyline |
"Closing old and inefficient steel capacity in the 26 + 2 cities is set to cut production by 50 percent and aluminum by 30 percent, before mills and smelters elsewhere in China lift output to compensate."
Furthermore,
"(This)... is driving positive sentiment right now."
Back in May, we wrote that "...supply tightened after China reportedly shut down power to 26 zinc and lead mines in the Hunan Province amid safety and environmental concerns last year." The Chinese government fears nothing more than an uprising by its people. As a result, it is acutely focused on economic growth and the living standards within its borders. A downturn in either and there are tens of millions, if not hundreds of millions, who could turn on them.
Today's concern for the Chinese people is air pollution; and the government is working overtime to improve it as poor air quality has resulted in thousands of lives lost in China every month.
The Guardian reported,
"Physicists at the University of California have found 1.6 million people in China die each year from heart, lung and stroke problems because of polluted air."
"The major Chinese steel city of Tangshan has launched a fresh crackdown on mills that illegally restart production or violate industry overcapacity rules, according to a notice published by the China Iron and Steel Association..."
The article went on to confirm that, in Tangshan alone, the government "aims to close around 8.6 million tonnes of annual production capacity this year."
Finally,
"Hebei aims to cut major emissions by more than 15 percent by 2020 and will step up efforts to force local industries to meet their pollution targets for 2017, the official Xinhua news agency reported, citing a local government plan..."
China is curbing steel production at a time when demand is surging. According to a
news.com.au article from August 7th,
"Chinese rebar steel futures jumped 4 per cent to their highest in four years..."
These factors are specifically pushing zinc and nickel prices higher. Nickel traded at a multi-month high this past week.
Copper Signals Global Economy Set for Growth
Unsurprisingly, copper, also known as Dr. Copper for its price reflecting the state of the global economy, is performing exceptionally well amidst the current surge in global growth. This past week, futures for September delivery climbed above $3 per pound - the highest since November of 2014.
"Copper's 2017 year to date gains in percentage terms now top 19% and the red metal has recovered 55% in value after falling to six-year lows below $2.00 a pound in January last year."
Positive sentiment from the U.S. economy to Japan and even the E.U. are spurring demand.
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| Open pit copper mining operation in Chile, the world's largest producer of the base metal. China is the second biggest copper producing nation in the world. |
Copper mines, plagued with strikes and bad weather, have lost nearly 10% of production in the first quarter of 2017. A major contributor was Escondida, the world's largest copper mine, which endured a 43-day strike earlier this year. Freeport McMorRan's Grasberg copper mine, the world's second largest, is currently enthralled by a worker's revolt. Reports are sketchy, but disgruntled workers have clashed with security forces. In
Copper price rallies after Grasberg violence,
"Reuters reports at least seven people were injured and dozens of vehicles and buildings torched."
Copper Prices Remain in Uptrend