Recently, spot premiums in Guangdong have been continuously rising. Since the contract rollover last month, the South China premiums have been weakening. However, at the end of October, premiums rose, and entering November, Guangdong premiums have maintained an upward trend. What are the reasons behind this? This article will briefly analyze the reasons for the rise in premiums and future developments.
Fundamentals side: Supply side, the current spot inventory in Guangdong is relatively normal. Although social inventory slightly decreased in mid-to-late October, it increased in November, so the overall change is not significant. According to SMM, the main circulating brands in the Guangdong market, such as Qilin, Mengzi, Huize, Danxia, and Lanxin, are in a relatively stable state. The main reason for the low daily shipments by traders is the large price spread between futures contracts, with a significant discount on the November contract. Even if traders have goods, their willingness to sell is low. Many traders also indicated that due to high market quotations, they could not continue to procure spot cargo after consuming their previous stock, leading to some shortages.
Demand side: Downstream consumption remains mediocre. Last week, the operating rate of die-casting zinc alloy recorded 56.21%, up 1.01 percentage points WoW. This increase was mainly due to the resumption of production by large factories and a few companies receiving more orders. However, most companies are still primarily stocking up on an as-needed basis. Looking at the overall situation in October, downstream consumption remained average. Many companies reported that orders in various sectors decreased due to high zinc prices, so overall downstream consumption of die-casting zinc alloy was mediocre.
Price side: Current zinc prices have been fluctuating at highs, but the price spread between the 2411 and 2412 contracts is too large. The spread has increased from around 100 yuan/mt to over 300 yuan/mt, causing Guangdong traders to quote for the November contract, which has driven up spot premiums in Guangdong.
In summary, downstream consumption remains weak. In terms of spot cargo, many traders have goods but are unwilling to sell due to the large price spread. The significant price spread has also caused Guangdong premiums to rise continuously. If the price spread remains large, Guangdong premiums will stay high in the short term. If the price spread gradually narrows, Guangdong premiums will also gradually decline.
