Expectations for US Fed Rate Hikes Surge, LME Zinc Falls Under Pressure [SMM Morning Meeting Summary]

Futures: Last Friday, LME zinc opened at $3,594/mt. In early trading, bulls and bears were intertwined, with the LME zinc center edging down to oscillate around $3,570/mt. Subsequently, the center rebounded, and during the night session, LME zinc surged to a high of $3,602/mt. Afterwards, bears added positions heavily, and LME zinc fell to a low of $3,522.5/mt near the close, ultimately settling at $3,540/mt, down $54.5/mt or 1.52%. Trading volume increased to 11,703 lots, while open interest rose by 3,251 lots to 234,000 lots. Last Friday, the most-traded SHFE zinc 2607 contract opened at 24,815 yuan/mt. In early trading, the contract climbed to a high of 24,870 yuan/mt before bulls took profits and prices pulled back, dipping to 24,640 yuan/mt near the close and ultimately settling at 24,695 yuan/mt, down 85 yuan/mt or 0.34%. Trading volume decreased to 59,844 lots, and open interest fell by 748 lots to 96,892 lots.
Macro: Israel launched airstrikes on the southern suburbs of Beirut, Lebanon; Iran responded with missile strikes and Trump intervened urgently. The US added 172,000 nonfarm payrolls in May, exceeding expectations, and the market fully priced in a 25bp rate hike by the US Fed before year-end. Trump stated that the Fed has no reason to raise interest rates, the employment report is very strong, the stock market should rise, and economic growth does not mean inflation. Iran denied agreeing to transfer some enriched uranium to a third country. Seven OPEC+ countries will raise their production targets by 188,000 barrels per day from July. Putin rejected Zelensky's "talks" proposal, calling it meaningless. Sources said the US government is considering taking a stake in artificial intelligence companies. The PBOC increased its gold holdings for the 19th consecutive month, rising by 320,000 ounces MoM.
Spot:
Shanghai: In Shanghai, the purchasing sentiment for refined zinc stood at 2.08, and the selling sentiment at 2.6. In the morning, zinc futures prices edged down MoM. Some downstream enterprises made pricing-based purchases as needed, leading to improved spot trading. Traders focused on selling. Overall, spot premiums last Friday were little changed from Thursday.
Guangdong: In Guangdong, the purchasing sentiment for refined zinc was 1.83, and the selling sentiment 2.40. Last Friday, market offers were relatively stable, and futures edged down, with market activity picking up slightly. However, current high prices and cautious consumption expectations constrained demand release, and enterprise purchases were primarily driven by rigid demand.
Tianjin: In Tianjin, refined zinc purchasing sentiment was 1.78 and selling sentiment 2.45. Zinc prices pulled back slightly but did not reach the psychological price levels of downstream users. Downstream buyers engaged in small-scale restocking of rigid demand with limited price fixing, and traders maintained steady premiums on their sales. Overall market trading was moderate.
Ningbo: There were many traders selling in the market, and overall supply was ample. In the morning, zinc futures prices fell only slightly. Downstream alloy plants largely purchased as needed. Overall, spot trading last Friday was moderate, and spot premiums remained basically stable from Thursday.
Inventory: On June 5, LME zinc inventory decreased by 950 mt to 110,950 mt, down 0.85%; according to SMM communication, as of June 4, China's inventory decreased by 5,000 mt to 264,100 mt.
Zinc Price Outlook: Last Friday, LME zinc formed a large bearish candlestick. US non-farm payrolls data for May again recorded strong growth, which boosted market expectations for a US Fed rate hike within the year. The US dollar rallied strongly, nonferrous metals came under pressure and declined, and LME zinc's center shifted lower. Last Friday, SHFE zinc formed a small bearish candlestick, with resistance from the 5-day and 10-day moving averages above. Macro side, significantly increased rate hike expectations put nonferrous metals under pressure. Weakness outside China dragged down the China market. China’s end-use consumption weakened, and SHFE zinc declined. However, further declines in China's zinc concentrate TCs provided some support for SHFE zinc, limiting its downside. SHFE zinc is expected to trade range-bound today.

Data Source Statement: All data other than publicly available information are processed by SMM based on public information, market communication, and SMM's internal database models, and are for reference only, not constituting any decision-making advice.