August 5, 2022

The ongoing power crisis in Europe is a “significant threat” to global zinc supply in 2022, according to Glencore. In its 1H 2022 production results report, released yesterday, the company stated that their European zinc production was 350,900 mt, down 12% from 1H 2021, as one smelter was closed due to high electricity costs, and its remaining zinc smelters are currently barely profitable. Europe, which represents nearly 30% of global zinc production according to Glencore’s calculations, has been subject to several zinc smelter closures in 2021 and 2022 due to high electricity costs. As for demand, Glencore believes that China’s zero-COVID policy, the Russia-Ukraine conflict, and fears over inflation could all pose demand-side risks.

Zinc has rallied nearly 21% off the lows of mid-July 2022 and could rally further if Glencore’s supply concerns come true. This could be an opportunity for end-users such as galvanizers to hedge future needs by buying swaps or call options. Both of these strategies would establish a maximum zinc price. Such positions are basic for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (8/5/2022)

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