SHANGHAI, May 23 (SMM) - SHFE zinc returned to above 22,000 yuan per tonne in last Friday evening session after consolidating around the 5-, 10- and 20-day moving averages over the past three weeks.
Fundamental story drove the rally in zinc prices, SMM said.
Zinc concentrate supply remains tight due to slow output growth and restarts. TCs of both domestic and imported ore stayed low. Domestic mines were restricted from restarting production by environmental protection and safety checks. Meanwhile, overseas mines did not see much growth in output.
Besides, zinc ingot supply is also tight. An SMM survey shows China’s refined zinc output decreased 3.95% on the month in April, and a slide of 5.92% year-on-year. Refined zinc output will be about 2.117 million tonnes during January-May, down 1.5% year-on-year, SMM predicts.
Environmental protection checks will continue in Hunan’s Huayuan and Sichuan in May. At the same time, output at zinc smelters will be low, constrained by raw material tightness.
Moreover, zinc inventories in Shanghai, Tianjin and Guangdong decreased for 3 months in a row to 140,000 tonnes, the lowest in 8 years. Downstream demand is steady. Some downstream producers affected by environmental protection in North China restarted production recently. With firm spot premiums, zinc prices jumped.
Overall, zinc still has strong fundamentals. Ferrous metals strengthened from last Friday, with rebar and iron ore surging over 4%. This also pushed up zinc.
On the macroeconomic front, the People’s Bank of China (PBOC) implemented reverse repurchase last week and increased net capital injection this week. Growing liquidity led to capital inflows in the zinc market.
Zinc prices will hold strong during May and June, helped by good fundamentals, SMM foresees. But investors should be wary of price falls after delivery of June zinc on the SHFE.
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