SMM Review: Further Factors to Guide Zinc Prices following US Fed Rate Meeting

SHANGHAI, Jul 28 (SMM) - SHFE zinc prices showed signs of stabilising recently, and hovered around 23,000 yuan/mt. Will SHFE zinc regain its momentum? Considering that there are still many factors scrambling the market, it is unlikely that zinc prices will hold a clear trend. SMM believes that after the Fed raises interest rates, market players shall pay attention to the following points:

1. The domestic and overseas zinc concentrate TCs trend toward different directions. The domestic TCs for August rose 150 yuan/mt in metal content to 3,900 yuan/mt, while that for imported ore was lowered by $35/dmt to $165dmt. The overseas supply remained tight, while domestic smelters held the TCs firm as revenues obtained from the TCs contracted due to the inflows of imported ores after SHFE/LME price ratio rebounded, and as zinc prices were low. 

2. Overseas energy problems are still relatively serious. Russia is a major supplier of energy to the Europe. The overhaul of the Nord Stream 1 pipeline will limit the amount of natural gas it transports to no more than 33 million cubic meters per day, accounting for only 20% of its capacity. Affected by this, the prices of natural gas in Europe surged, and the prices of electricity have risen again to around 400-500 euro/MWh. Market players shall pay attention to the production situation of overseas smelters.

3. The prices of sulphuric acid, a by-product of smelting, have fallen rapidly recently, which has further squeezed the profits of smelters. Under the background of low zinc prices, domestic smelting profits are further damaged, and the supply elasticity will remain constrained before the raw material supply reliance improves. 

4. The LME inventory dropped all the way to around 72,000 mt, and the LME cash-to-three-month premium rose to above $100/mt again. And the market capital moves are of concern.

On the whole, the current macro pressure still exists, and it is difficult for the short-term zinc price to form a clear trend as the market sentiment is still unstable. Zinc prices are more likely to remain rangebound in the third quarter, and institutions may find the opportunity of reverse arbitrage.