[SMM Analysis] Zinc Export Window Stays Open — Where Are Zinc Prices Headed in August?

SMM Aug 17 News:

As of July 31, the SHFE zinc front-month contract settled at RMB 24,800/mt, up RMB 190/mt month-on-month, a gain of 0.77%. Zinc prices traded at elevated levels throughout July, dipping to a monthly low of RMB 24,070/mt in early July before peaking at RMB 25,035/mt toward month-end, with prices holding broadly firm at the high end of the range. Since July, the zinc ingot export window has reopened, and it has remained largely open through August. How are zinc prices likely to move over the coming month?

Macro perspective. Market attention has lately centered on US-Iran tensions and the path of Fed rate hikes, leaving July macro sentiment split between bullish and bearish forces. Entering August, with Middle East geopolitical conflicts recurring and US July ADP, nonfarm payrolls, and CPI data all coming in below market expectations, expectations of Fed tightening have cooled and the US dollar index has retreated from its highs, lending support to nonferrous metals.

Supply side. August zinc concentrate treatment charges continued to fall month-on-month, with SMM's domestic zinc concentrate TC down to RMB −1,550/mt of contained metal — yet another record low. However, supported by profits from by-products such as sulfuric acid and metal-rich residues, and with some smelters resuming output after earlier maintenance, SMM expects refined zinc production in August to rise on a monthly basis. On balance, zinc ingot supply remains relatively robust.

Demand side. In August, downstream zinc consumption remains in the shoulder period between the off-season and peak season, with divergent performance across segments. Galvanized structural steel is seeing less weather-related disruption, and operating rates are expected to recover modestly month-on-month; by contrast, galvanized sheet operating rates are expected to keep sliding amid environmental constraints and weakening orders. Zinc oxide output is likely to edge up as previously idled plants restart and external disruptions diminish, while die-casting zinc alloy orders stay persistently weak and operating rates are expected to stabilize at low levels. Overall, demand recovery in August is limited, and domestic consumption continues to weigh on zinc prices.

That said, China's zinc ingot export window has reopened since July. According to SMM estimates, spot exports of Chinese zinc ingot to Southeast Asia have remained consistently profitable since July, and certain brands have already been shipped to Southeast Asian countries. In August, as the SHFE/LME price ratio continues to deteriorate, the window for exporting Chinese zinc ingot for delivery into LME warehouses has also opened. As of August 14, the spot profit on exports to Southeast Asia stood at roughly RMB 845/mt, while the profit on LME delivery was around RMB 380/mt, with both windows remaining open through the month. Market sources indicate that some Chinese zinc ingot has already been delivered into LME warehouses in Hong Kong in August, and with exports to Southeast Asia continuing, domestic zinc ingot inventories have shown a steady, modest drawdown in recent weeks. The export outlook, together with falling domestic inventories, supports SHFE zinc at high levels; meanwhile, the LME zinc backwardation structure has continued to widen and LME zinc stocks keep declining, and the strength of the overseas market is also underpinning the domestic complex.

Overall assessment. On the macro front, the market continues to track progress in US-Iran negotiations and Fed-relevant US economic data. On the fundamentals, the concentrate tightness shows no sign of easing in August — domestic zinc concentrate TCs keep sliding — yet smelters have not cut output meaningfully and refined zinc supply remains strong; consumption, meanwhile, is expected to weaken gradually. Fundamentals thus offer a mix of bullish and bearish signals, but the zinc ingot export outlook, combined with the persistent support from the LME's structural backwardation, is expected to keep SHFE zinc prices trading at high levels in August. Close attention should continue to be paid to macro developments and demand performance.

(The above information is based on market collection and comprehensive evaluation by the SMM research team. The information provided in this article is for reference only. This article does not constitute direct advice for investment research and decision-making. Customers should make cautious decisions and should not replace their independent judgment with this information. Any decisions made by customers are not related to SMM.)