Zinc Rally Driven by Demand for Better Cars in China and India

19 December 2016

In a stellar year for commodities, one base metal—zinc—stands out from the pack, with prices rising more than 70%.

Thanks to greater demand for higher-quality cars in big developing markets such as India and China, many investors think this rally will be more than a flash in the pan.

Zinc’s surge had been aided by the closure of several mines world-wide during a previous price slump that restricted supply. Now, with consumers in India and China buying more cars that use rustproof galvanized steel—which is made using zinc—analysts think demand could continue to outstrip supply.

“The rise in zinc and coal has certainly brought back investor optimism,” said Steve Hulton, research director at Metals & Mining Fundamentals in Sydney.

“Given zinc’s comparatively tighter fundamentals among base metals, we do expect zinc prices to continue to outperform,” said Molly Shutt, commodities analyst at BMI Research.

At the moment, zinc is used sparingly in cars sold in India and China. While zinc adds less than 2% to the price of a car, according to Sunil Duggal, chief executive officer of Hindustan Zinc Ltd., auto makers have been reluctant to make it standard in developing markets because of a lack of consumer awareness about its benefits, in addition to cutthroat price competition. That could change as more-affluent customers demand better-made rides.

Source – WSJ