Lead and Zinc Markets: Diverging Performances and Key Trends

Lead and zinc, closely related metals in terms of geology and extraction, have recently shown stark contrasts in their market performance. This disparity stems from varying dynamics in supply, demand, and global inventory levels. Below, we analyze the key trends shaping each market and their interrelation, while also highlighting potential future trajectories.

Zinc Prices Surge Amidst Supply Shortages

In October 2023, zinc prices on the London Metal Exchange skyrocketed to a 20-month high, reaching $3,284 per tonne for three-month contracts. The market's bullish momentum has been fueled by a severe shortage of raw materials, spurring price premiums in key regional markets.

Key Drivers of the Zinc Shortage:

- Curtailments in production capacity, particularly across major regions such as Europe.

- The rising cost of energy, which has put pressure on refining and production outputs.

- Decreasing commercial inventories available for trade, further tightening the market.

The global zinc market faces persistent challenges in balancing supply and demand, leading to heightened volatility and upward price trends.

Zinc’s Premium Over Lead Reaches New Records

One noteworthy dynamic has been the growing price premium of zinc over lead. As of Q4 2024, the premium exceeded a staggering $1,000 per tonne, marking the highest level since February 2023. This gap can be explained by several underlying factors:

1. Strong industrial demand for zinc, particularly in infrastructure and automotive sectors, where it is widely used for galvanizing steel.

2. A constrained supply of zinc owing to limited mining activity and refining capacity.

3. Relative stability in lead consumption, with its primary use in batteries showing limited growth.

Conclusion

The stark contrast in market performance between lead and zinc reflects the underlying complexities of the global metals market. While zinc continues to benefit from its critical role in modern industrial applications paired with supply challenges, lead faces more traditional market dynamics with ample secondary supply supporting its consumption needs. This divergence underscores the importance of closely monitoring macroeconomic, supply chain, and sector-specific factors when analyzing these metals.