SMM Exclusive: Zinc to Continue Benefiting from Fundamentals

SMM Insight 03:28:02PM Nov 28, 2016 Source:SMM

SHANGHAI, Nov. 28 (SMM) - SHFE 1701 zinc rose by daily limit after opening November 28, reaching 24,410 yuan per tonne, and hovering around 24,300 yuan per tonne. What’s drive up zinc?

Strong fundamentals fueled long momentum, SMM said.

Environmental Protection Restricts China’s Zinc Concentrate Output

China’s environmental protection affected operating rates at mines in Yunnan, Guangxi and Hunan. Mines in North China, including Inner Mongolia were forced to cease production in the winter season, SMM said.

China’s zinc concentrate output was 3.84 million tonnes in the first ten months of the year, down 0.12% year-on-year. So this year will unlikely see output growth even if output picked up in the rest two months of the year. Domestic zinc concentrate TCs are 3,900-4,200 yuan per tonne (zinc content) in December, down 250 yuan per tonne (zinc content), according to SMM quotes. TCs for zinc smelters in South China were close to 4,000 yuan per tonne (zinc content, price to factory). Smelters are now still scrambling for ores, and TCs will have room to fall further.

Low Zinc Concentrate Imports

Import losses have been expanding from mid-January this year, and are now around 1,300 yuan per tonne. This depressed import business, SMM said. Port inventories fell from over 400,000 tonnes early this year to less than 100,000 tonnes. TCs of imported zinc concentrate slide $20 per dry metric tonne to $50-70 per dry metric in December, according to SMM quotes. Raw material inventories at zinc smelters are now only sufficient to about one month of production, far short of 2-3 months of production needed. In this scenario, some smelters will be forced to undertake maintenance soon.

Limited Refined Zinc Imports

China’s refined zinc imports were 477,400 tonnes during January and October, a drop of 3.94% year-on-year. Inflows of imported zinc were very scarce in the fourth quarter as import window remains closed. This supported domestic spot zinc prices, SMM added.

Refined Zinc Inventories Continue Falling

Zinc demand is still stable. SMM statistics show total zinc inventories in Shanghai, Tianjin and Guangdong fell 15,300 to 225,200 tonnes as of last Friday. Inventories in Guangdong grew slightly, and those in the other two regions both fell. Spot premiums on #0 zinc against SHFE 1701 zinc were 0-30 yuan per tonne recently.

Positions on SHFE zinc continued to rise this year, once hitting an all-time high of 720,000. Positions hovered around 480,000 when zinc prices posted sharp gains recently. Price gains topped market expectations with large capital inflows.

Based on these reasons, SMM reckons zinc will continue to rise in the foreseeable future. 

SMM Exclusive: Zinc to Continue Benefiting from Fundamentals

SMM Insight 03:28:02PM Nov 28, 2016 Source:SMM

SHANGHAI, Nov. 28 (SMM) - SHFE 1701 zinc rose by daily limit after opening November 28, reaching 24,410 yuan per tonne, and hovering around 24,300 yuan per tonne. What’s drive up zinc?

Strong fundamentals fueled long momentum, SMM said.

Environmental Protection Restricts China’s Zinc Concentrate Output

China’s environmental protection affected operating rates at mines in Yunnan, Guangxi and Hunan. Mines in North China, including Inner Mongolia were forced to cease production in the winter season, SMM said.

China’s zinc concentrate output was 3.84 million tonnes in the first ten months of the year, down 0.12% year-on-year. So this year will unlikely see output growth even if output picked up in the rest two months of the year. Domestic zinc concentrate TCs are 3,900-4,200 yuan per tonne (zinc content) in December, down 250 yuan per tonne (zinc content), according to SMM quotes. TCs for zinc smelters in South China were close to 4,000 yuan per tonne (zinc content, price to factory). Smelters are now still scrambling for ores, and TCs will have room to fall further.

Low Zinc Concentrate Imports

Import losses have been expanding from mid-January this year, and are now around 1,300 yuan per tonne. This depressed import business, SMM said. Port inventories fell from over 400,000 tonnes early this year to less than 100,000 tonnes. TCs of imported zinc concentrate slide $20 per dry metric tonne to $50-70 per dry metric in December, according to SMM quotes. Raw material inventories at zinc smelters are now only sufficient to about one month of production, far short of 2-3 months of production needed. In this scenario, some smelters will be forced to undertake maintenance soon.

Limited Refined Zinc Imports

China’s refined zinc imports were 477,400 tonnes during January and October, a drop of 3.94% year-on-year. Inflows of imported zinc were very scarce in the fourth quarter as import window remains closed. This supported domestic spot zinc prices, SMM added.

Refined Zinc Inventories Continue Falling

Zinc demand is still stable. SMM statistics show total zinc inventories in Shanghai, Tianjin and Guangdong fell 15,300 to 225,200 tonnes as of last Friday. Inventories in Guangdong grew slightly, and those in the other two regions both fell. Spot premiums on #0 zinc against SHFE 1701 zinc were 0-30 yuan per tonne recently.

Positions on SHFE zinc continued to rise this year, once hitting an all-time high of 720,000. Positions hovered around 480,000 when zinc prices posted sharp gains recently. Price gains topped market expectations with large capital inflows.

Based on these reasons, SMM reckons zinc will continue to rise in the foreseeable future.