Glencore Warning over Zinc Supply Sends Zinc Prices to New High

SHANGHAI, Aug 5 (SMM) - Yesterday evening, Glencore, a major zinc smelter, warned that the European energy crisis has posed a major threat to zinc supply, which sent both domestic and foreign zinc prices to a new high. LME zinc once rose more than 5% to $3,554.5/mt, a new high since June 23. SHFE zinc price has also been boosted and touched a high of 24,905 yuan/mt since June 24.

According to SMM prices, the spot price of SMM #0 zinc has also risen sharply, up 680 yuan/mt in a single day to 24,810-24,910 yuan/mt, with an average of 24,860 yuan/mt, which was 10.93% higher than the low set on July 15.

On the news side, Glencore mentioned in a statement that the current energy supply and price environment in Europe has posed a huge threat to zinc supply. Meanwhile, LME zinc stocks have nearly halved in the past three months. Overseas zinc prices rose sharply amid supply concerns. 

From the perspective of overseas supply, natural gas supply crisis in the Europe extends, which, coupled with the impact of high temperature, keeps the prices of natural gas and electricity high. And the risks of production cuts by smelters grow further. 

In China, according to the latest SMM survey, the output of refined zinc in July totalled 475,900 mt, a decline that exceeded previous estimate. China refined zinc output is expected to be 511,000 mt in August, up 35,100 mt from July and an increase 0.42% or 2,100 mt YoY. On the whole, the output in August will increase relatively significantly thanks to the resumed capacity from maintenance. Meanwhile, the imports of zinc concentrate will also partly ease the supply tightness of ore. 

SMM zinc ingot inventories across seven markets in China remained low at 138,300 mt as of August 1, but it was 1,700 mt higher than that on July 29. The main increase came from the Guangdong market. When the zinc prices were high and when the die-casting sector entered the off-season, the demand in the market weakened palpably. And the local inventory rose coupled with additional arrivals.

On the demand side, the die-casting and zinc oxide sectors are currently in the off-season and are at the same time affected by the downturn in real estate and automobile consumption. The export orders also fell short amid weakening overseas demand. Considering the weakening of overall consumption, SMM has limited expectations for these two sectors during the year. As for the galvanising sector, the current macro policy tends to be mild, but the infrastructure investment continues to exert influences. In terms of real estate, in order to realise the goal of guaranteeing real estate projects delivery, a nationwide rescue fund is in active preparation to accelerate the recovery of terminal demand. Downstream demand may slowly bottom out, and the operating rates in the galvanising sector will gradually increase.

On the whole, as the current political risk on the macro front is relatively prominent on top of the likelihood of a squeeze, zinc prices will be quite volatile. Market players are advised to stay cautious.