SHANGHAI, Mar 3 (SMM) - Under the influence of geopolitical tension, LME and SHFE zinc prices continued to rise yesterday after a strong upward trend the day before. LME zinc rose as high as 3.57% in intraday trading, reaching a new high of $3,999/mt since May 2007; SHFE zinc also rose by more than 3%, a new high of 26,240 yuan/mt since October 20, 2021.
Spot markets also contributed an impressive move. The average spot price of SMM 0# zinc ingots rose by 730 yuan/mt to 26,070 yuan/mt yesterday, a daily jump of 2.88%.
On the news front, Russia-Ukraine conflicts have been increasingly tense. After Russia, the world's largest energy exporter and the second largest oil and gas producer, was put on sanctions, global energy prices have soared. International oil prices have already exceeded $110/barrel, while natural gas prices in eurozone also rose sharply.
It needs to be mentioned that, according to the data from International Energy Agency, the share of Russia’s natural gas supply in the EU and the UK has increased from 25% in 2009 to 32% in 2021, which shows that eurozone is heavily dependent on Russia’s energy. Therefore, after the EU joined the energy sanctions against Russia, the energy shortage issues in Europe was further intensified. Natural gas and electricity prices rose sharply. The markets have the worries that zinc production may be held up or undergone a steep reduction, which will worsen the supply shortage and significantly push up LME zinc prices.
In contrast, the upward trend of zinc prices in domestic market is obviously weaker than overseas. From a fundamental point of view, SMM believes that the zinc concentrate supply shortage in domestic market will continue, and the TCs are expected to fall further. For ingots, SMM expects that domestic refined zinc output will increase by 76,000 mt to 529,000 mt in March month-on-month, a relatively significant increase of 32,100 mt year-on-year, while the imported window of zinc is still shut. It is expected that the imported zinc ingots will still be in the form of long-term orders and in small amount.
In terms of inventories, the latest data shows that overseas LME zinc inventories are at the lowest since July 2020. Domestically, before February 28, the total inventory of zinc ingots in the seven places of China was 283,500 mt. Inventories from home and abroad are in huge difference.
In terms of consumption, although more galvanising and zinc die-casting alloy enterprises have started their operations, it is far less than expected year-on-year, and there are still disturbances of environmental issues in the north, which slows down the work of galvanising enterprises. In term of spot market, under the influence of zinc prices rising for consecutive days and end-consumption lower than expected, spot transactions are at a low level.
Overall, SMM believes that the zinc prices will still have advantages in overseas market than in domestic. And high energy prices can support the zinc prices. It is expected that the zinc prices still have a tendency to rise in short term, but with less upside momentum.
