Last week, the market traded on recession logic, with an overall weak macro atmosphere, leading to a collective decline in non-ferrous metals. Supply side, low processing fees resulted in high profits for domestic mining companies. According to estimates, the average profit for domestic mining companies in H1 was 4,173 yuan/mt in metal content, up over 40% YoY. Currently, profits have increased to around 6,000 yuan/mt in metal content. This has led some mining companies to consider production cuts and maintenance after reaching their profit targets. If mining companies increase maintenance and production cuts in H2, coupled with the widespread issue of declining ROM grades, the supply tightness of domestic zinc concentrate may intensify. The current shortage of ore and declining smelting profits have already affected smelters. In July, smelter output decreased by 56,200 mt to 489,600 mt, a drop far exceeding expectations. Although August's output is expected to remain relatively stable, continued declines in zinc prices and processing fees are likely to further expand smelting losses, increasing the willingness of smelters to cut production. From an inventory perspective, overall inventory has significantly decreased from around 200,000 mt in mid-July to less than 140,000 mt. However, inventory remains at a four-year high, and the recent decline is due to both smelter production cuts and downstream restocking. Actual consumption remains in the off-season, and poor performance in the ferrous metals market may drag down galvanized consumption. Attention should be paid to consumption improvement in late August. Overall, the fundamentals provide strong support for zinc, and zinc prices may experience short-term volatility with a strong bias. Focus on changes in macro sentiment.
The SMM model expects SMM #0 Zinc Ingot Average Price to run in the range of [21,850，22,925] from Aug 12 to Aug 16with price clustering around 22,380 yuan/mt, an extreme price range of [21,500，23,210], a normal price range of [21,730，23,020]，and a conservative price range of [21,970，22,830]. The price trend for this week is sideways oscillations or falling. Support is at [21,730，21,970], and pressure is at [22,830，23,020].
