Silver Decline Becomes Zinc Gains

The bear market in silver is poised to turn around the fortunes for zinc as miners reduce production and end the seven-year glut in the industrial metal.

Silver makes up 40 percent of the value of byproducts from zinc mining and helps reduce costs for mineral companies, HSBC Holdings Plc says. Its 33 percent slump in the past seven months added about $130 a metric ton, or 7 percent, to average zinc production costs, according to CRU, the London-based research company. Zinc demand will exceed supply by about 4,000 tons in 2014, from a 44,800-ton surplus this year, the average of 14 analyst estimates compiled by Bloomberg show.

Companies from Terramin Australia Ltd. (TZN) to Yukon Zinc Corp. said they are curbing unprofitable operations. Prices will rise 3.6 percent to an average of $1,952.50 in the fourth quarter and $2,000 in the following three months, according to the median of as many as 14 analyst estimates. Silver fell as investors lost faith in precious metals as a store of value. Citigroup Inc. is forecasting the lowest annual average in five years in 2014.

“A falling silver price effectively raises the cost curve in the zinc industry,” said Andrew Keen, the global head of metals and mining equity research at HSBC in London, who has covered metals markets for more than two decades. “It doesn’t have to fall as far as it used to to trigger closures of mine capacity.”


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Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu