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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Will Big Production Cuts In China Provide Another Boost For Zinc Prices?

Back from the proEXPLO exploration conference in Peru. Where metals like gold and zinc were some of the biggest stories of the show.

And zinc may be about to get even more interesting. Judging from emerging reports in the world’s top producing nation — China.

Reuters reported that the Chinese government is moving to curb zinc production. As part of a drive to reduce pollution across the country — with potentially significant implications for supply and prices.

Details on the China cuts are currently scarce. With sources in country noting only that the government is targeting steel mills that emit excessive pollution.

That program to shut down polluting facilities reportedly also extends to zinc and nickel plants. Raising the possibility those metals could see output fall, as older and outdated production is taken offline.

That same story has already played out in China recently, in the coal industry. Where a move to close smaller and older mines has reduced supply across the country — prompting a 250 percent rise for some coal prices over the last year.

Traders thus appear to be taking the new China zinc and nickel initiatives seriously. With both metals hitting their highest prices in nearly three weeks after the announcement of the anti-pollution program.

It’s not clear yet exactly what methods the government will use for dealing with polluting zinc and nickel facilities. But reports from China’s Tangshan city suggest that authorities will check air emissions — and then heavily fine or suspend operations that don’t meet spec. Related: Oil Prices Rise As Saudis Discuss OPEC Deal Extension With Iraq

The nickel markets aren’t like to see a huge impact — with China producing just 4 percent of the world’s nickel supply. But the effect on zinc prices could be much more pronounced, given that China puts out a full 38 percent of global production.

That makes this emerging campaign a critical one. Watch for details on specific facility suspensions to see just how much capacity might be taken offline.

Here’s to here we go again.

By Dave Forest

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