SHANGHAI, Jul. 28 (SMM) - Zinc prices hovered above 22,000 yuan per tonne in July, and reached 23,650 yuan per tonne this past week, the highest from April 2017. Why did zinc price extend gains in July？

SMM reckons market fundamentals give support to zinc prices.

First, supply tightness bolstered zinc. Output at mines in Sichuan and Hunan decreased in July because of environmental protection inspections. Zinc concentrate output in Inner Mongolia fell due to lower-grade at some mines. Heavy rains in Yunnan also affected local zinc ore production. SMM survey shows the average operating rate at domestic zinc mines was 76.7% in July, down 4.6% on the month.

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The average operating rate at zinc smelters is expected to be 74% in July, flat at June’s. Some zinc smelters restarted production after maintenance, but there were some additional smelters in north China undertaking maintenance. Domestic zinc ingot supplies did not change noticeably. According to China Customs, China imported 41,713 tonnes of zinc ingot in June, lower than expected. Zinc imports may continue falling in July since the import profit window closed. Zinc ingot available will be limited in the near term.

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Second, consumption is relatively robust despite the off-season. Zinc consumption is not weak despite the July-August low-demand season. Zinc ingot inventories in Shanghai, Guangdong and Tianjin are still low.

Third, macroeconomic factors drove up zinc prices.

Zinc prices will continue to hover at highs due to fundamentals factor, SMM foresees. But, price may have risks to fall slightly in the near term with retreat of longs after profit-taking.

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