Zinc Prices are Unlikely to Fall Further amid the Strong Cost Support on the Smelting Side

SHANGHAI, Dec 7 (SMM) – Focuses of this week include: Q3 GDP annual rate readings, the December ZEW economic prosperity index in the Eurozone; China CPI annual rate in November and the annual rate of M2 money supply in November. On events side, Bank of Canada will issue interest rate resolutions on December 8.

The COVID pandemic is an uncertain factor for LME zinc. It is necessary to pay attention to whether major overseas economies will take lockdown measures; and the measures taken by the Fed should serve as an alert. If the Fed accelerates the tapering of bond purchases, it will suppress zinc prices. On fundamentals, the electricity prices remain as the focus of overseas market. The comprehensive electricity prices in Europe hit a record high last Monday before falling. Smelters in Europe suffered losses of $100/mt based on the latest electricity price last Friday. LME inventory in Europe fell 1,475 mt to a low of 3,525 mt and the overall LME stocks declined 9,925 mt to 153,350 mt. The overseas market features weak supply and strong demand and LME cash-to-three-month backwardation remained high. The market held bearish sentiment. The support of zinc prices came from rising costs caused by electricity price hike.

The pressure from continued decline in TCs and rising electricity prices on smelters were increasing. Some smelters in Hunan planned to control their output amid cost pressure. The increase in the output in December is expected to be less than the previous estimate. The market may pay attention to the output data due December 6. On the consumer side, environmental protection warnings in north China came again. Handan and Tangshan have issued warnings of heavy air pollution last week, requiring companies to reduce production. Meanwhile, the transportation has also been affected.

It is reported that enterprises in Fengrun District of Tangshan were required to suspend natural gas-involving production in December. The consumption for galvanised products is expected to be impacted this week. The consumption in east and south China gradually recovered and the operating rates at companies increased slightly. The domestic zinc market is likely to see supply-demand balance in December and zinc prices will be supported by costs. The most-traded SHFE contracts prices are expected to stand at 22,800-23,800 yuan/mt this week, and spot premiums of Shanghai zinc are expected to record 20-50 yuan/mt over the January contract.