Short supplies, declining inventories buoy prices of SHFE zinc 

SHANGHAI, Jul 12 (SMM) – Supply shortages, declining social inventories, and steady consumption in the month to Thursday July 19 contributed to the rebound of the SHFE zinc 1809 contract in the last two days, SMM believes. The contract rebounded over 5% in the last two days.

The contract maintained its momentum and jumped to a high of 21,645 yuan/mt after opening on Thursday, up over 1,220 yuan/mt from the same time on Wednesday. 

As supplies continued to be short, the SHFE 1808 contract stood around 300 yuan/mt higher from the 1809 contract on July 19. The gap widened from 200 yuan/mt on the morning of July 18.

Domestic zinc production in July is expected to dip from June as more smelters undergo maintenance. This includes Chifeng Zhongse Zinc, Shanxi Dongling, Chihong Zinc & Germanium, and Xing'an Copper & Zinc.Yunnan Luoping Zinc & Electricity suspended operation from June 25 on environmental woes. It remains closed as of July 19. Maguan Yuntong Zinc was closed permanently due to its poor performance, SMM learned. 

The market saw import profits as stocks of imported cargoes depleted. As a result, over 160,000 mt of zinc inventories in the bonded area is expected to enter domestic markets in the near term. Commonly traded brands include AZ, KZ, SMC, and YP, as well as Spanish, Indian, and Peruvian brands. Only the Australian AZ brand can be delivered at SHFE warehouses.

We expect the SHFE 1808 contract to consolidate between 10- and 20-day moving averages in the short run, with pressure at the 21,500 yuan/mt level as the threat of a trade war continues to loom.