Essential to Life as We Know It
Zinc is one of the world’s most important metals. It’s also one of the least followed. But unlike gold, it isn’t just pretty to look at.
Zinc is necessary to sustain life. Humans, animals and even plants need it for development and growth. It’s even added to fertilizers and multivitamins.
But zinc’s health benefits are responsible for just a fraction of the world’s demand for the metal.
The world’s emerging superpowers are eating it up.
The Red Dragon’s Appetite for Zinc
China is the world’s biggest user of zinc. That’s because China spends more money on infrastructure than the U.S. and Europe combined.
Last year alone, China spent $2 trillion investing in its infrastructure. And that number is growing by $300 billion each year.
As an emerging first world nation, China’s economic growth requires an increasing amount of raw materials and metals.
Since the rise of the Chinese economy in the the first decade of the 21st century, the world has witnessed a sharp increase in raw materials prices. Despite the financial crash in 2008, China’s demand has grown substantially over the past twenty years.
In 1997, China consumed roughly 10 percent of global iron ore and zinc production. By 2007, the country’s consumption had risen to 40 percent of the world’s zinc production. Today, China is responsible for nearly 50 percent of the world’s zinc demand. Not surprisingly, China’s zinc utilization heavily influences zinc prices.
Chinese urbanization is a primary driver of economic growth. As the population migrates from the country to cities seeking a better way of life, China’s consumption patterns are changing.
As incomes increase so too does the demand for consumer goods like automobiles and the raw materials needed to produce them.
This massive urban migration created an unprecedented demand for infrastructure, too. This construction, in turn, fueled an extraordinary need for the natural resources, especially zinc, to build it.
China’s turbo-charged growth has helped fuel the most recent commodity booms. And the country’s growth is accelerating once more.
As China’s growth rate climbs, the country will demand more commodities to feed it – including zinc. China’s increased need for the metal will continue to drive zinc prices higher.
Last quarter, China’s economy grew faster than anyone expected. The country’s annualized GDP growth rate rose to 6.9 percent.
Source: www.tradingeconomics.com: National Bureau of Statistics of China
Higher government infrastructure spending and China’s record-breaking property boom drove a lot of the surprise.
More construction means China is using more zinc to produce the galvanized steel necessary to construct the country’s buildings, roads and bridges. But government funded construction isn’t the only area of China’s economy that is experiencing accelerated growth.
Private investment growth rose to 7.7 percent. And the Chinese consumer is also participating.
Income growth picked up, too. Disposable income in China is growing at 7 percent, the fastest rate since 2015. Retail sales bounced 10.9 percent, too, as sales of appliances, furniture and cars all increased.
The Chinese economy is firing on all cylinders. And it needs even more zinc to fuel it.
But China isn’t the only emerging economic superpower gobbling up zinc. They will be competing with another country for this increasingly scarce resource metal.
India’s Infrastructure Resurgence Depletes Stores
India, and its emerging economy, is also a major zinc consumer. As the country continues its investment in infrastructure such as power transmission, urban housing and transportation infrastructure, its demand for zinc to make galvanized steel and alloys will continue to rapidly rise.
By 2020, India is projected to be the fourth largest automotive producer in the world. Automobile manufacturing will further increase the country’s zinc demand.
Last year, India’s economy grew 6.6 percent according to the International Monetary Fund (IMF). In 2017, economic growth is expected to accelerate to 7.2 percent. Like China, the more India’s economy grows, the more zinc the country will need.
But China won’t be India’s only competitor for zinc supplies. They will be bidding against the United States as well.
The Trump Trade Bonus
During his campaign, President Trump promised to invest in America’s crumbling infrastructure. He said he wants to create jobs by rebuilding airports, bridges and roads.
All of those construction projects will call for galvanized steel and other zinc alloys to ensure the structures last.
When his spending plan is approved, America’s need for zinc will increase, further adding to the increasing worldwide demand for the metal. With tight supplies, the price of the metal has nowhere to go but up.
The Natural Law of Supply Versus Demand
Zinc is the fourth largest consumed metal after iron, aluminum and copper. And in construction, zinc is a shining king.
That’s because of zinc’s anticorrosive properties. It bonds well to other metals, especially for steel makers it’s a popular coating. Through the process called zinc galvanizing, thin layers of zinc are added to steel or iron ore to prevent rust.
Zinc is also a popular alloy. An alloy occurs when multiple metal elements are combined to create a substance that is stronger and more resistant to corrosion than the individual metals alone.
When zinc is combined with copper or other metals, new materials like brass are created. These new metals make up many household fixtures, technological components and automobiles.
But it isn’t just manufacturers or construction projects that are driving zinc demand. Technology companies need it, too. The world’s most innovative companies are buying up zinc.
Like all commodities, zinc prices rise and fall with supply and demand.
When demand is weak, zinc stockpiles build and prices collapse. And when prices of the commodity fall low enough, it isn’t cost effective to pull the metal out of the ground. That’s what has happened over the past few years.
Zinc mines have been closed. There is a lot less of the metal available when demand eventually increases. Industry insiders call it the commodities cycle.
But when demand for metals increases and there is less of the metal available, prices rise…quickly.
The same thing happened during the last great zinc bull market which started in 2004. That’s when zinc supplies quietly began to fall.
Then prices of the commodity took off hitting new highs over the next three years. Supporting the commodities cycle.