After college, my first car was a Toyota Corolla sedan. The engine was a well-designed machine. I wish I could say the same for the body panels, which quickly took a look at the rusty Swiss cheese; the holes are growing year by year.
Thanks to these episodes, car manufacturers started using galvanized steel – the body panels “hot dipped” in a corrosion-resistant molten zinc bath.
But automakers in two of the world’s most populous countries have not received that reminder. At least until recently.
The result? A huge bullish escape pours into the zinc market at a time when many of the world’s leading analysts are expected …
Bloomberg The recent title “Rusty Cars in China is ready to support the rally for Top Metal 2016” says it all. The reaction on zinc prices has also increased by 60% since the beginning of this year.
Only about a third of the 19 million cars and trucks manufactured in China last year were built with galvanized steel.
It is the same in India, where consumers bought a record 2 million vehicles last year; only about 20% was made with galvanized steel, according to the India Institute of Technology Bombay.
When you think of the sales forecasts for vehicles in both countries by 2020 (24 million in China, 5 million in India), it is very zinc.
Don’t look now, but …
My point is not to run out and buy zinc-mining stocks. It’s just a note that the demand for raw materials often materializes as expected until the rising prices make it all too obvious.
Take a look at what’s going on with the nickel.
The Philippines is an important supplier of raw nickel in the air. The new Duterte administration, which took office during the summer, is in the midst of a “review” of the nation’s three dozen mines, threatening to put some of the alleged environmental violations out of service.
It is not exactly “love”, but it certainly helps the case of loving the current race in nickel prices. UBS Group AG analysts see nickel prices rise another 25% next year (after 20% gain so far this year).
Of all the major industrial metals, copper is one of the most widely observed. The price of the red metal has barely moved during the whole year. It’s been down 50% since 2011.
However, the largest Japanese producer, Pan Pacific Copper, is up 40% to around $ 7,000 a ton by 2020. Citigroup recently made a similar forecast. Why?
It’s about supply and demand.
Copper demand has remained relatively stable, although economic growth in China – the world no. 1 copper consumer – has slowed in recent years.
But the supply of copper is completely another matter.
At the end of last year, Glencore – one of the world’s largest copper miners – decided to destroy its largest mines in Africa, taking 400,000 tons of copper production from the global market. In Chile, the largest copper supplier in the world, the state commission for copper announced major investment cuts in 2025, eliminating eight mine development projects worth nearly $ 23 billion.
Now you can see where these projections on the price of copper come from. At Citigroup, analysts are seeing deficits between supply and demand for copper increase. At the aforementioned Pan Pacific Copper, the company’s president said: “Production will not be able to keep up with demand because of the new supply, unless prices reach $ 7,000 (per ton).”
With a copper price below $ 5,000 a ton right now, this offers a lot of leeway for potential profits – and yet another reason to keep an eye on this “most hated” class of products.