SMM Analysis: Zinc Prices Found Little Support from Ore Shortages and Falling Inventories, Future Trend Will Depend on Consumption

SHANGHAI, Jun 21 (SMM) -  The market is worried about the economic outlook in the context of US and European interest rate hikes to fight soaring inflation, weighing on base metals. SHFE zinc hit its lowest since May 16 at 25,165 yuan/mt yesterday. 
Spot zinc prices also fell. The SMM prices of #0 zinc ingots dropped to 25,380-25,480 yuan/mt, with the average price at 25,430 yuan/mt, a new low since late March. 
SMM believes that bearish macro sentiment was the main reason for the decline in zinc prices. 
From a fundamentals point of view, domestic smelters are still facing a shortage of zinc ore. In terms of exports, the export of refined zinc increased significantly in May. According to customs data, the export of refined zinc in May was 35,500 mt, and the import volume was only 3,200 mt, thus net export was maintained. Traders who have locked in prices previously will continue to export in June, but the export volume is expected to decrease from May. It is expected that refined zinc trade will extend the net export into June.
 In terms of inventory, according to the latest data from SMM, the inventory of zinc ingots in China’s seven major regions was 218,100 mt as of June 20, which was 63,000 mt lower than that on May 5. Demand recovery from the pandemic and exports allowed the social inventory to fall. 
Although the current consumption is slightly weak, SMM believes that zinc prices will find some support from the cost side. There is no need for the market to be overly bearish on zinc prices. The upward room of zinc prices will be determined by the magnitude of consumption recovery. It is expected that the short-term zinc prices will run between 25,000-26,500 yuan/mt.