How much support does downstream consumption provide to zinc prices? [SMM Analysis]

Recently, zinc prices have been running at a high level of over 23,000 yuan/ton. How does downstream consumption perform? Can zinc prices continue to remain high? SMM will analyse it from the downstream operations, terminal performance and inventory.

Due to weakening ferrous metal prices, fewer completed housing projects and high zinc slag prices, galvanising and zinc oxide producers operated at a slightly lower rate on a year-on-year basis. However, galvanized sheets and die-casting zinc alloy producers operated at a higher rate on a year-on-year basis due to the improvement in export orders. Overall, operation rates are expected to continue to decline YoY.

It still takes time for the trade-in policy, new provident fund loan policy and house purchase restriction lifting in first-tier cities to have an effect on the real estate. Completed housing projects have remained in a negative growth of more than 20% year-on-year, which has dragged down zinc consumption. In terms of infrastructure, ultra-high voltage is still the top priority, with total scale of grid investment and construction over 500 billion yuan. At the same time, the trillion-yuan special government bond is required to start before the end of June this year, which is expected to boost zinc consumption. Although the cumulative export of home appliances has declined year-on-year, it is still at a high level. Good production schedules of enterprises continue to drive zinc consumption.

Social inventory continued to accumulate after the New Year, partly contributed by imported zinc ingots. The output of domestic smelters decreased significantly year-on-year, further showing weak consumption.

In the short term, consumption provides limited support for zinc prices. In the long run, with the support of exports and policies, consumption may be expected to improve. However, considering the stagnant real estate and the extremely small proportion of zinc in the new energy of infrastructure, the improvement is expected to be limited.