Why is the MoM change in galvanized production operating rate relatively weak? [SMM Analysis]

Impacted by the weak real estate market and infrastructure construction, starting from H2 2024, the operating rates at galvanising producers have been weaker than the same period in previous years. With the traditional off-season, high temperatures, heavy rainfall, and typhoon disturbances, what is the current situation of galvanising plants?

According to the SMM survey, since July, operating rates at galvanising producers have been weak, significantly lower than the same period last year. On one hand, the downturn in the real estate sector is hard to reverse, and infrastructure construction projects have also been lower-than-expected, resulting in no actual demand growth. On the other hand, due to the drag from the real estate sector, ferrous metals prices have remained continuously low and weak. Although there were some boosts during the period, traders and galvanising producers are not optimistic about future prices, leading to continuous declines in sales and reduced operating rates. Additionally, due to the weather, many galvanising producers have adjusted or reduced worker shifts and increased cooling measures due to high temperatures, and they may also choose to take high-temperature holidays when necessary, which also impacts operating rates.

Similarly, with zinc prices remaining high, most producers have changed their production strategy. Raw materials and finished products will not be excessively stockpiled to prevent profit inversion. The reduction in orders has led to increased competition among companies, resulting in lower processing fees and slower collection of receivables, which also inhibits producers from purchasing raw materials.

At the end of July, the Central Committee of the Communist Party of China held a meeting, proposing to expand domestic demand with a focus on boosting consumption. Additionally, with the reduction of the impact of extreme weather at the end of August, some producers still have expectations for orders and production in August and September. It is necessary to continue to pay attention to the implementation of subsequent infrastructure construction projects.