Refined Zinc Back to Net Import in Jul amid Falling Exports

SHANGHAI, Aug 25 (SMM) - China imported 2,000 mt of refined zinc in July, down 17.09% on the month and 96.23% on the year, according to the General Administration of Customs. The imports totalled 51,000 mt in the first seven months of 2022, down 83.11% YoY. Total exports of refined zinc stood at 1,900 mt in July, with a net import volume of 1,000 mt.

In detail, the export destinations in July 2022 are mainly Taiwan, China (1,500 mt), Vietnam (200 mt), and Bangladesh (100 mt); the top three supplying countries to China are Myanmar (1,000 mt), South Korea (700 mt), and Japan (200 mt). In July, refined zinc recorded a state of net import thanks to narrowing import loss which was less than 2,000 yuan/mt after SHFE/LME price ratio rebounded to 7.4. Nonetheless, the import window remained closed. The export window was also closed in July. In addition, the cargoes whose prices were fixed in the previous period have basically been exported. Therefore, the overall export volume declined.

August is a window period, meaning that there will no major influences on the macro front. The US Fed rate meeting at the end of July was in line with expectations and Powell did not release further policy guidelines at the meeting. The macro sentiment was repaired, which was bullish for zinc prices. The market players now focus more on the fundamentals during this window period.

Overseas, the monthly TCs for imported ore has been reduced by $35/dmt to $165/dmt, indicating persistent supply shortage. Meanwhile, under the European energy crisis, natural gas prices have repeatedly hit record highs. In mid-August, Trafigura announced that it would close zinc smelter BUDEL with a capacity of 300,000 mt/year from September 1, which triggered bullish sentiment. But zinc prices quickly resumed rationality after hitting a two-month high.

As of August 23, although the LME inventory was still at a historical low of less than 80,000 mt, the inventory had added 5,925 mt from the previous month. In the absence of an increase in the supply side, there growth in inventory was the result of poor overseas consumption. At the same time, the LME cash-to-three-month premium has been high, and market players shall pay attention to the changes of open interest in recent months. On the whole, overseas energy issues have a greater impact on smelters’ production, and zinc prices may still be on the rise.

In China, the supply and demand are still both weak. Compared with overseas energy crisis, some domestic provinces are still affected by power shortages. It is expected that the output of refined zinc in August will increase slightly from the previous month to about 490,000 mt, which is lower than expected. On the consumption side, the operating rates of galvanising plants are sightly better MoM, but the die-casting and zinc oxide sector remain poor. The overall consumption has improved as a whole compared with in July, while the market shall keep watching the performance of the real estate amid sufficient liquidity and the orders from the infrastructure projects. On the whole, under the background of weak supply and demand, the issue on the supply side is more prominent. Falling social inventory also offers further support to zinc prices.

To sum up, although the LME zinc price has been boosted by the energy crisis, there is no news of further production cuts, hence it lacks strong upside momentum. In China, the import losses have expanded to more than 4,000 yuan/mt despite a rally of SHFE zinc, and SHFE/LME price ratio has been low at 6.9. Market players shall keep monitoring the progress of power rationing and its impact on the supply side, which may push up the price ratio. But it is still unlikely that the import window will open.

Therefore, SMM believes that the import window will not open substantially as SHFE/LME price ratio remains low. The refined zinc exports and imports are expected to hover around a low level after taking into account the shipping cycle and channels as well as the level of market animation.