SMM Analysis: Factors to Watch after SHFE Zinc Hit New Low

SHANGHAI, May 10 (SMM) – The most-traded SHFE zinc contract crashed below 26,000 yuan/mt to 25,355 yuan/mt last night, its lowest since March 22.

LME zinc performed poorly amid bearish macro sentiment, dragging down SHFE zinc.

Fundamentals

On the supply side, according to SMM survey, the estimated output of refined zinc in April was 495,500 mt, a slight decrease from the previous month and lower than expected. On the demand side, according to the latest inventory data of SMM, the total inventory of zinc ingots in seven major regions in China was 276,000 mt, a decrease of 1,100 mt from before the Labour Day holiday.

 In terms of consumption, the impact of the current domestic pandemic is still ongoing. Although the downstream production has improved, it has not fully recovered, thus giving little confidence to the market for the time being.
 The market needs to closely watch following factors:

1. The recent upward movement of the SHFE/LME zinc price ratio has led to the complete closure of the export window. In the future, the market needs to pay attention to the changes in domestic zinc inventory.

2. Higher SHFE/LME zinc price ratio opened zinc ore import window, but this is not enough to solve recent zinc ore shortages. Some zinc smelters have already started stockpiling for use in Q3, which means that the domestic zinc ingot output will increase in H2.Expected decline in exports and suppressed domestic consumption amid the pandemic will put downward pressure on zinc prices.