SMM Analysis of Chinese Zinc Market Fundamentals After Zinc Prices Surged on Energy Concerns

SHANGHAI, Mar 25 (SMM) - LME zinc jumped over 7% and hit a new high since March 9 at $4,195/mt on March 23 as the escalation of the Russian-Ukrainian conflict and the rising energy prices caused the market to worry about supply shortages. SHFE zinc also moved up the next day.

In the spot market, the average price of SMM 0#zinc ingot was 26,290 yuan/mt as of March 24, up 650 yuan/mt from the previous day.

Russia has asked European countries to settle natural gas in rubles. International energy prices soared, so did natural gas prices, causing market concerns about metal supply.  Nyrstar restarted the Auby zinc smelter in France, but stressed that high electricity prices still hinder the smelter's full production, and the restart of the smelter is more due to government subsidies.

From a fundamentals point of view, although TCs of imported zinc concentrates were still at a high level of $165/dmt, losses on zinc concentrate imports were as high as 2,242 yuan/mt due to high LME zinc prices. The import window was still closed.  SMM data showed that the inventory of zinc ingots across seven major regions in China fell further to 276,900 mt as of March 21. This was mainly because the pandemic disrupted transportation of zinc ingots in many regions. Sharply rising zinc prices and energy prices hurt downstream consumption.

Zinc prices are expected to move up further amid the energy crisis.