SHANGHAI, Aug. 4 (SMM) - Discounts on #0 zinc in Guangdong against Shanghai prices are expected to expand further due mainly to oversupply and weak consumption in Guangdong, SMM predicts.
"Guangdong saw a continued supply overhang as smelters in and around Guangdong left operating rates high”, SMM explains. The average operating rate at smelters in Southwest China is expected to stay around 70% in July, SMM says, compared with the average 61.5% in the first half of the year.
Demand from die-cast zinc alloy producers in South China, major zinc consumers there, subdued due to the July-August off-season and sluggish export orders. Some producers also halted production due to the summer heat. This allowed Nanchu’s zinc inventories to grow from May’s 37,000 tonnes to around 50,000 tonnes recently.
Supply tightness in Shanghai will also help widen the price spread between Guangdong and Shanghai. Some smelters held back shipments to Shanghai against continuously falling zinc prices, reducing stocks at traders. Higher premiums on #0 zinc in Tianjin over Shanghai also drove some shipments to the first, further tightening supply in Shanghai.
Guangdong’s discounts on #0 zinc against Shanghai prices increased to 120-140 yuan per tonne August 3, their largest since January 13, 2015, SMM finds.
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