Base metals face tough macro conditions as zinc struggles to gain traction

Metals have experienced a significant sell-off in the past month with zinc prices plunging from over $3,500 per tonne on January 26 to below $2,400 this month. Prices are currently hovering near 24-month lows, while copper has also reached near 6-month lows. Other metals, including aluminium, iron and steel, have encountered a similar fate.

According to Guy Wolf, the Global Head of Market Analytics at Marex, zinc represents the prevailing trends in most base metals.

He further added, “Zinc is sort of somewhat unloved because it's not seen as a sort of battery metal per se, even though, it is very, very tied into the steel industry, which people typically see as cyclical.”

Wolf highlights that the demand for metals did not rebound after China's reopening, resulting in a short-term softness in demand.

Despite being the weakest price performer among base metals, Wolf suggests that it wouldn't be hard for zinc to rally $5,000 per tonne.

In contrast to zinc, copper is generating a more bullish sentiment. Most experts, including Wolf, anticipate a positive trajectory for copper prices in the next 2-3 years.

Wolf points out that the copper market will soon face a deficit, further supporting the bullish outlook. However, he notes that demand from China has yet to pick up, limiting the potential for a surge in copper prices.

Base metals play a crucial role in the ongoing energy transition, with metals such as zinc and copper serving as integral components in renewable energy technologies. Despite their current challenges, base metals remain essential in the narrative of the energy transition.