LME Zinc Backwardation Structure Expands, LME Zinc Center Shifts Higher [SMM Morning Meeting Summary]

July 23 Zinc Morning Meeting Minutes

Futures: Overnight, LME zinc opened at $3,556/mt. At the start of the session, LME zinc consolidated near the daily moving average. Near the European trading session, it dipped to a low of $3,544/mt. Subsequently, bears reduced positions and exited, and LME zinc drifted higher, with its center shifting higher to around $3,585/mt for consolidation, touching a high of $3,598/mt during the period. It eventually closed higher at $3,585/mt, up $37/mt, or 1.04%. Trading volume increased to 10,225 lots, and open interest decreased by 2,011 lots to 248,000 lots. Overnight, the most-traded SHFE zinc 2609 contract opened higher with a gap at 24,650 yuan/mt. At the start of the session, SHFE zinc quickly dipped to a low of 24,610 yuan/mt. Bulls added positions, pushing the center of SHFE zinc higher, trading above the daily moving average, and hitting a high of 24,800 yuan/mt. Subsequently, SHFE zinc attempted to break lower, but failed due to resistance at the daily moving average, causing the center to return above the daily moving average. It eventually closed higher at 24,765 yuan/mt, up 240 yuan/mt, or 0.98%. Trading volume decreased to 53,224 lots, and open interest increased by 4,340 lots to 102,000 lots.

Macro: Iranian officials said Trump's claim about Tehran requesting negotiations is "completely baseless"; US Secretary of State Rubio: willing to reach a diplomatic solution with Iran, but Iran lacks sincerity; Iranian military: If the US follows through on its threats, Iran will cut off all oil flows from the Gulf region and strike infrastructure there; Israeli media: The US has notified Israel that it plans to escalate strikes against Iran in the coming days; Yemen's Houthi forces claimed they attacked two Saudi oil tankers in the Red Sea; Trump: expects a US federal government "shutdown" in September; Ministry of Finance: In H1, securities transaction stamp tax revenue increased 97.3% YoY; Beijing State-owned Capital Management: As of now, it has deployed its own funds totaling nearly 10 billion yuan into the stock market.

Spot Market:

Shanghai: Shanghai region's refined zinc purchase sentiment was 2.00, and sales sentiment was 2.56. Yesterday, SHFE zinc futures prices rose MoM, and downstream enterprises' wait-and-see sentiment re-emerged. Yesterday, overall inquiry and purchase volumes decreased somewhat. Spot trades showed mediocre performance, while trader quotes were basically stable compared with the previous day, and market premiums overall changed little.

Guangdong: Guangdong region's refined zinc purchase sentiment was 1.98, and sales sentiment was 2.50. Recently, the Shanghai-Guangdong price spread has gradually widened, and there is some sentiment to hold prices firm. Some traders quoted higher, leading to significant transaction resistance. Meanwhile, with yesterday's futures market rising, downstream enterprises mainly adopted a wait-and-see approach, and overall trading was cautious.

Tianjin: Tianjin region's refined zinc purchase sentiment was 1.92, and sales sentiment was 2.54. Yesterday, the futures market surged, and downstream enterprises were cautious about purchasing at high prices. Traders had a mentality to hold prices firm when selling. Transactions were mainly between traders, premiums remained stable, and overall market trading was mediocre yesterday.

Ningbo: Market traders' quotations were basically firm, and spot premiums remained stable compared to the previous day. However, in the morning session, zinc futures prices rebounded from lows, leading downstream enterprises' wait-and-see sentiment to resurface. Yesterday, there were fewer inquiries and purchases, and spot transactions were sluggish.

Social Inventory: On July 22, LME zinc inventory decreased by 850 mt to 107,650 mt, a decline of 0.78%. According to SMM communication and understanding, as of July 20, China's inventory increased by 1,300 mt to 269,000 mt.

Zinc Price Forecast: Overnight, LME zinc recorded a bullish candlestick, with the daily candlestick center moving higher. MACD turned positive from negative territory, while the middle Bollinger Band provided support below. Overnight, geopolitical conflicts in the Middle East escalated, inflation risks increased, LME zinc inventory continued to decline, LME Cash-3M backwardation widened to $30.16/mt, concentration of fund open interest increased, and LME zinc traded on a strong note. Overnight, SHFE zinc recorded a three-day winning streak, with the daily candlestick center moving higher and multiple moving averages below providing support. Overnight, driven by the LME market, SHFE zinc's center moved higher. Fundamentals-wise, the pattern of tight ore and loose ingot supply has not changed yet. TCs fell to historical lows, the SHFE/LME zinc price ratio operated at low levels, zinc ingot exports are expected, and zinc prices have strong bottom support.

Data Source Statement: Data other than publicly available information are obtained by SMM through processing based on public information, market communication, and SMM's internal database model, for reference only and do not constitute decision-making advice.