Material Matters: Zinc & Rare Earths

Commodities | Dec 22 2021

A glance through the latest expert views and predictions about commodities: zinc and rare earths.

-Zinc is positively exposed to rising European power prices
-Ongoing elevated pricing for NdPr needed to incentivise new projects 
-Rare earths price forecasts raised by 39% over the next three years 
-Some ASX-listed companies with rare earth exposures

By Mark Woodruff

Rising European power prices lift forecasts for zinc

Citi considers zinc is the most exposed metal on the supply side to rising European power prices. All European zinc smelters, hedged or unhedged for power, are considered to have a large economic incentive to reduce utilisation to the extent it is technically possible.

An already tightening physical zinc market looks set to be amplified by potential European smelter disruptions and a recent smelter curtailment by the global multi-metals business Nyrstar, explains the analyst.

As a result, Citi raises its 0-3 month zinc price forecast to $3,700/t from $3,350/t, on the potential for higher LME prices from a widening deficit in Europe, which could lead to LME inventory declines in Asia.

While not alluded to by name in the broker’s research, any rise in zinc price forecasts should have a positive effect for South32 ((S32)), which has exposure via its Cannington zinc-lead-silver mine in Queensland. 

Nyrstar has announced that its 150ktpa Auby smelter in France will be put on care and maintenance in the first week of January in response to surging power prices. French power prices have reacted to "low availability of nuclear power, high carbon-related costs passed on by power companies and reduced fixed-price allowances for industry”, points out the company.

The Auby smelter accounts for 1% of Morgan Stanley’s estimated 2022 global smelter output, and 7% of European supply. 


Rare Earths

In a scenario similar to that observed for lithium markets in mid-2021, Petra Capital believes prices for Neodymium-Praseodymium (NdPr) oxide will remain elevated in order to incentivise new projects into production. 

As a result of recent geopolitical tensions, end-users see strategic value in obtaining NdPr from outside China in order to secure supply chains for their advanced technology industries.

The broker recently raised its rare earth price forecasts by 39% over the next three years and 11% long term.


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