The Gold Report: In late June, zinc and nickel prices on the London Metals Exchange (LME) dipped on concerns surrounding the economic fallout from Greece exiting the Eurozone. What’s your view?
Stefan Ioannou: When the referendum was first announced in late June there was a big reaction. There is no doubt the issue is a political crisis. However, unless you live in Greece, the actual financial impact is questionable. That’s not to say that it hasn’t justifiably sparked concern for the well being of the greater Eurozone. Although there is now better clarity regarding the European Union’s bailout package, the jury is still out on the ultimate implications of the situation. Nevertheless, we expect general market sentiment regarding the base metals will continue to be centered on Asian demand. Looking further ahead, we continue to anticipate a lack of timely new mine development will lead to a supply constrained market, which will drive market fundamentals.
TGR: The spot price for zinc flirted with $1.10/pound ($1.10/lb) in May, but now it’s around $0.90/lb. Which zinc price is real and which one is the imposter?
SI: Relatively high zinc inventories are behind the current zinc price. The zinc price spiked to $1.10/lb in the spring, but our feeling at Haywood was that it was a bit too much too soon. Nevertheless, higher prices appeared to be driven by steady inventory drawdowns on the order of 2,000 tonnes per day. This relatively persistent trend saw LME inventories drop by half over the last year. However, more recently we have seen sporadic inventory spikes, on the order of 5,000 tonnes per day, occur more regularly, which in turn has prompted the LME inventory levels to stagnate around the 450,000-tonne to 460,000-tonne level, which hasn’t helped near-term zinc pricing or sentiment.
TGR: What is your near- and medium-term forecast? …read more