Data from Fitch Solutions shows that zinc prices in 2022 have been revised upwards from $US2550/tonne ($3537/tonne) to $US2900/tonne, as prices are starting the year higher than expected.
Prices averaged $US2995/tonne in 2021 and ended the year around $US3428/tonne, a slight decrease from the high of $US3944/tonne reached in October 2021.
The Fitch 2022 price forecast implies the company expect prices to stabilise and weaken from here on in the coming months, despite remaining elevated compared to historical standards.
On the demand side, strong consumption from the steel sector will continue boosting demand for zinc in the coming months, although demand growth will start to slow.
Fitch expects global crude steel production growth to average around similar levels in 2022, suggesting a similarly robust growth in galvanised steel production, which is the main source of demand for zinc.
Global refined zinc output remains pressured, as major producers Nyrstar and Glencore have announced reduced production on the back of the energy crisis in Europe.
Chinese production has now started to stabilise after being hampered by government-enforced power-rationing in Yunnan Province, however, the output is not back to past levels yet.
Strong growth in zinc mine supply will result from expansions and restarts in key producers including Peru, Australia and Canada, which in turn will boost downstream refined zinc production.
Fitch forecasts zinc to average $US2360/tonne over 2022-2026, maintaining a steady downtrend out to 2030.
There is an expected average annual production surplus of 476,000 tonnes over 2026-2030, compared to 203,000 tonnes over 2021-2025.
Zinc prices will be dragged lower as long-term production growth outstrips subdued consumption growth.
The most significant drag on global zinc demand growth will come from China, which accounts for around half of annual refined zinc consumption.
Fitch predicts steel production growth in China to slow from an annual average of 5.5 per cent over 2018-2022 to just 1.3 per cent over the subsequent five years.
As a result, China is expected to flip from being a significant net importer of refined zinc, as has consistently been the case over the past decade, to become a major net exporter.