Japan: Domestic zinc prices hit 14-year high as Nyrstar cuts output

Domestic prices of zinc in Japan have surged to their highest levels in 14 years. Prices have been on an upward trend throughout the year, hitting the margins of hot dip galvanizers.

On the other hand, inquiries for construction materials, which account for the largest share of the total end-consumers, are resuming. Although there are differences among sectors and regions, demand is recovering, and expectations are high that the market scenario will improve after the New Year.

Prices

The benchmark price for zinc in Japan's domestic market has been at a high level since October, exceeding 400,000 yen for the first time in three years. At its peak, the price reached 493,000 yen, the highest in 14 years. After that, the price settled in the low 400,000 yen range, but rose again later this month. It is currently at 478,000 yen, the highest level since CY'07.

The London Metal Exchange (LME) zinc market, which is a key indicator of prices, has risen 11% since the beginning of the month, and the three-month futures price has shot past $3,500/t, which is the highest level seen in two months.

The price of oil that melts zinc bullion remains high, and the cost of procuring various materials such as jigs and wires is also increasing.

Nyrstar plan to shut France plant fuels supply worries

Against the backdrop of energy problems in Europe, major zinc producer Nyrstar announced on 16 Dec'21 that it will shut its zinc smelter in France from January next year in the face of heated European power prices. On 21 Dec'21, European gas prices reached a record high, raising concerns about further soaring electricity prices and resulting cuts in production.

The soaring prices of zinc weigh heavily on hot-dip galvanizing manufacturers. Demand is being impacted by the new Covid variant, and production volumes have fallen below the levels seen in the same month of the previous year.

On the other hand, orders for building materials, which account for around 40% of the total demand, have been increasing slightly since August due to the recovery in sales of steel frames. The backlog of orders from leading steel fabricators has been increasing, particularly for large buildings in urban areas.

Way ahead

Domestic prices of zinc are expected to be around 400,000 yen from Jan'22 owing to the surge in overseas prices due to supply concerns.

Many projects have been suspended due to the new Omicron variant, especially in areas of transportation infrastructure. Demand is expected to recover depending on how the pandemic pans out.

~ Inputs from Japan Metal Daily