SMM February 5 News:
Spot premiums in the Guangdong market rose by 30 yuan/mt today (February 5) compared to the last working day before the Chinese New Year holiday (January 27). So, why have spot premiums increased, and what will the future trend be?
According to SMM's communication with enterprises, the high spot premiums reported on the first trading day after the holiday were mainly due to the lower-than-expected inventory buildup in Guangdong. After last year's Chinese New Year holiday, Guangdong's inventory increased by 12,600 mt, while this year it only rose by about 8,900 mt, a YoY decrease of 3,700 mt. This inventory change provided some support for Guangdong's spot premiums, causing a slight increase. So, what will be the future trend of Guangdong's spot premiums? The following analysis will focus on inventory, downstream consumption, and zinc prices.
First, from the perspective of social inventory, which is a key market concern, Guangdong's current inventory has not accumulated as significantly as it did during the same period last year. However, it is reported that spot cargo in the market remains sufficient. On one hand, the proportion of long-term contracts from smelters has increased this year. On the other hand, many traders, in order to save on warehouse entry, exit, and storage fees, have chosen to store some goods directly at smelters and ship them directly to downstream users. Therefore, although the inventory growth in Guangdong warehouses is limited, the actual supply in the market is not scarce.
Second, regarding downstream consumption, due to the impact of the domestic Chinese New Year holiday, downstream consumption in Guangdong remains weak. The main downstream consumer of zinc in Guangdong is die-casting zinc alloy. Data shows that the operating rate of die-casting zinc alloy was 19.95% in the week before the Chinese New Year, down 33.78% MoM. The production of die-casting zinc alloy is influenced by the operating status of electroplating plants, which in Guangdong typically resume operations around the Lantern Festival. As a result, many die-casting zinc alloy plants also plan to resume production around the Lantern Festival. This weak downstream consumption currently fails to effectively support the rise in Guangdong's spot premiums.
Finally, from the perspective of zinc prices, the recent implementation of the US's external tax policy, followed by its announcement of a delayed execution, has caused significant market disruptions, leading to a tense global trade outlook. However, in the short term, due to the impact of downstream consumption and operating conditions, SHFE zinc prices are likely to fluctuate downward. Such price fluctuations may provide some impetus for enterprises to resume production and replenish inventories.
In conclusion, as enterprises gradually resume production, Guangdong's spot premiums in February are expected to continue rising, with an overall trend of starting low and moving higher. Continued attention should be paid to the recovery of downstream consumption.
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