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What’s Outlook for Zinc Market after Advancing? SMM Reports

iconFeb 13, 2017 10:20
Source:SMM
What's outlook for zinc market after advancing quickly?

SHANGHAI, Feb. 13 (SMM) – SHFE 1703 zinc jumped to 23,150 yuan per tonne on February 8 after opening, up over 2%. The surge was mainly because Korea Zinc expected its sales to fall by 6.7 percent in 2017 in its financial report, which raised market expectation over production cuts at overseas smelters. Meanwhile, possible output reduction at Zhuzhou Smelter Group for removing further fueled market sentiment, sending up prices quickly. But, zinc market later fell back from highs after meeting resistance and surrendered earlier gains, growing market caution at highs. 

SMM learns that Zhuzhou Smelter Group will remove its old factory in 2017, and output will not be affected over the year, as the plan is only at the initial stage, and the factory will not be removed until 2018. 

“Zinc prices are expected to fluctuate at highs before downstream demand fully recovers,” SMM zinc analyst predicts. 

First, domestic zinc smelters show high production enthusiasm, with limited production cuts. According to SMM preliminary data, output of refined zinc will likely fall by 20,000 mt in January, and approximately 6,000 tonnes of production will be negatively affected in February, with output declines lower than expectation. In January, TCs for zinc concentrate (including PP 20/80) were 5,200-5,300 yuan per tonne (Zn content), higher than cost level of 4,400-4,800 yuan per tonne (Zn content) according to SMM calculation. High zinc price and stable TCs will support production at domestic zinc smelters in February.  

Second, zinc demand is expected to remain weak during a traditionally low demand period. 

Domestic galvanized producers took 2 days’ longer for the 2017 Chinese New Year holiday compared with the 2016 Chinese New Year holiday, and the average operation rate was less than 50% in January. The rate is estimated to fall further in February, so zinc demand will likely weaken further in February on a monthly basis. According to SMM data, zinc inventories in Shanghai, Guangdong and Tianjin grew to around 280,000 tonnes, up 30,000 tonnes from the pre-holiday level, and this will also weigh on zinc price. 

However, zinc market is estimated to trade at highs as the market is relatively stronger than other metals technically. If TCs for domestic ore stay at current level, domestic zinc smelters will not reduce output until prices fall to 18,000-20,000 yuan per tonne, which will incur losses, SMM calculates. 

For news cooperation, please contact us by email: sallyzhang@smm.cn or service.en@smm.cn. 

zinc prices
TC/RC
SHFE zinc

For queries, please contact Michael Jiang at michaeljiang@smm.cn

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