US Dollar Index Strengthens, LME Zinc Jumps Initially and Then Pulls Back [SMM Morning Meeting Summary]

Zinc Morning Meeting Minutes on February 20

Futures Market: Overnight, LME zinc opened at $2,884/mt. In the early session, a tug-of-war between longs and shorts caused LME zinc to fluctuate around the daily moving average, with longs gaining the upper hand as LME zinc fluctuated upward. During European trading hours, it peaked at $2,900/mt, but shorts launched a high-level attack, driving LME zinc down to a low of $2,857.5/mt. By the session close, the center fluctuated near $2,870/mt, and it ultimately closed down at $2,874.5/mt, a decrease of $15/mt or 0.52%. Trading volume increased to 9,191 lots, and open interest rose by 629 lots to 224,000 lots. Overnight, the most-traded SHFE zinc 2504 contract opened at 23,940 yuan/mt. After briefly consolidating around the daily moving average in the early session, shorts increased positions, causing SHFE zinc to drop sharply, with the center shifting down to around 23,880 yuan/mt. By the session close, longs entered at lower levels, leading to an upward correction in SHFE zinc. It ultimately closed down at 23,935 yuan/mt, a decrease of 30 yuan/mt or 0.13%. Trading volume decreased to 31,343 lots, while open interest increased by 1,106 lots to 66,606 lots.

Macro: US Fed meeting minutes indicated considerations to slow or pause balance sheet reduction; Bostic stated that the Fed has made good progress in reducing the balance sheet. The UK’s January CPI annual rate hit a 10-month high. Trump warned Zelensky to make swift decisions on peace talks. Putin claimed that Russian forces crossed the Russia-Ukraine border in the Kursk region. Two departments released the "2025 Action Plan for Stabilizing Foreign Investment."

Spot Market:

Shanghai: In the early session, the market quoted spot premiums of 0-10 yuan/mt over the average price, with fewer quotes against the futures. In the second trading session, ordinary domestic brands were quoted at premiums of 0-10 yuan/mt against the 2503 contract, high-end brand Shuangyan at premiums of 100-150 yuan/mt, Huize at premiums of 80 yuan/mt, and Baiyin at parity. Some traders maintained a sentiment to stand firm on quotes, with low willingness to sell at discounts. However, as the futures market continued to fluctuate at highs in the morning, downstream inquiries were limited, and purchasing as needed led to no improvement in spot transactions compared to the previous day. Spot premiums remained stable.

Guangdong: Spot premiums over Shanghai were 10 yuan/mt. In the first session, suppliers quoted Kirin, Mengzi, Huize, and Feilong at discounts of 50~10 yuan/mt. In the second session, Mengzi and Lan zinc were quoted at discounts of 50~25 yuan/mt against the online price. Overall, more traders sold yesterday, but higher zinc prices compared to the previous day led to downstream resistance to high prices, with just-in-time procurement dominating. Current downstream consumption has yet to fully recover, so transactions showed little change from the previous day. As downstream consumption gradually improves, spot premiums are expected to rise.

Tianjin: Tianjin was at a discount of around 30 yuan/mt compared to Shanghai. By midday, Xinzi was quoted at discounts of 0~20 yuan/mt against the 03 contract, Xikeng at parity, Bailing (delivered) at around 60 yuan/mt, and high-end brand Zijin at premiums of 0~20 yuan/mt. The futures market mainly fluctuated yesterday, with slow recovery in downstream consumption. Operating rates fell short of expectations, and purchasing sentiment was low. Some traders, eager to sell, lowered premiums to discounts, resulting in average market transactions.

Ningbo: Spot prices were on par with Shanghai. In the first session, Kirin was quoted at discounts of -10~0 yuan/mt against the 2503 contract, Honglu-V at premiums of 10 yuan/mt, and Huize at premiums of 30 yuan/mt. In the second session, traders’ quotes remained unchanged from the first session. Recently, some downstream enterprises are still recruiting workers, leading to persistently weak demand for raw materials. Yesterday, downstream buyers continued just-in-time procurement of zinc ingots. With sluggish sales, traders found it difficult to raise spot premiums, and some remained on the sidelines, waiting for signs of improvement in downstream zinc consumption.

Social Inventory: On February 19, LME zinc inventory decreased by 3,200 mt to 155,550 mt, a drop of 2.02%. According to SMM, as of February 17, total zinc ingot inventory across seven regions monitored by SMM was 135,600 mt, an increase of 12,300 mt from February 13 and 16,900 mt from February 10, indicating a rise in domestic inventory.

Zinc Price Forecast: Overnight, LME zinc recorded a bearish candlestick, with support from the 5-day moving average below. Potential impacts of Trump’s policies raised the Fed’s concerns about rising inflation, driving the US dollar index higher and causing zinc prices to jump initially and then pull back. Overnight, SHFE zinc recorded a small bearish candlestick, with the KDJ indicator narrowing. Currently, macro sentiment is relatively positive, which contrasts with expectations of a surplus on the mine side. Zinc prices lack clear direction for now and are expected to fluctuate.