Zinc prices to weaken amid selling of governmental stockpiling

SHANGHAI, Jun 23 (SMM) — The National Food and Strategic Reserves Administration will release copper, aluminium, zinc and other national reserves in batches. Such action is targeted to non-ferrous metal processing and manufacturing enterprises, and public bidding should be implemented. SHFE zinc declined sharply amid the news. Though low stocks supported zinc prices, market sentiment has been impacted by the news and the expectations of an increase in market supply have been enhanced.

According to this announcement, this release will help to support downstream producers and avoid speculation caused by the circulation of goods on the market. If government sells 200,000 mt of zinc ingots, tight balance will be broken and market will see a large surplus. At the moment, the most possible way of selling its stockpiling is to put in a certain amount of zinc ingots every month and send them to downstream companies. Then downstream companies will lower their stockpiling, affecting spot premiums and discounts and slowing decline of social inventories. Besides, the increase of stocks will exceed expectations during low season.

Resumption of production in Yunnan zinc smelters in Yunnan is earlier than previously expected, which is in line with SMM optimistic expectations. Refined zinc output declined 4,500 mt in Yunnan. Except for Yunnan, the rest of smelters in other regions resumed production in May, with output at smelters in Gansu falling most.

Domestic refined zinc output is expected to rise from 12,300 mt to 507,000 mt on the month in June. Meanwhile, cargoes stockpiled by the government will enter downstream plants.  On galvanised zinc, companies awaited price decline of steel products.

Operating rates at galvansing producers are expected to decline 1.63 percentage points month on month to 71.56% in June amid low season in June, high temperature and rainy season.

On die-casting zinc alloy zinc, consumption has entered the low season and end-users reduced restocking amid high raw material prices. Operating rates at die-cast zinc alloy plants on the original sample are expected to decrease by 2.03 percentage points month on month to 37.68% in June, but up 8.68 percentage points on the year due to the low base.

Operating rates on the new sample are likely to lose 3.97 percentage points month on month to 57.56%. On the whole, the inflection point of zinc fundamental inventory will appear. Inventory indicators remain as the market focus. The domestic market is shifting towards a trend of increasing supply and decreasing demand. Zinc prices are expected to weaken and SHFE/LME price ratio to trend lower amid an increase in domestic supply.