CHENZHOU, Apr 3 (SMM) – Low inventories of zinc amid slow recovery of smelters under environmental pressure is likely to expand upward room in zinc prices in the first half of 2019, but this may not be able to last through the second half of the year as profits drive smelters to restart, said Liu Mengyue, SMM's senior analyst of the zinc industry.

Three-month LME zinc is expected to trade at $2,250-3,150/mt and the most-active SHFE contract at 18,500-24,500 yuan/mt in 2019, said Liu at the SMM Zinc and Lead Summit on Tuesday April 2 in Chenzhou, Hunan province.

She believed that domestic zinc smelters are likely to break the bottleneck in production in the latter half of 2019 as higher profits, lifted by higher treatment charges (TCs) for zinc concentrate, accelerate resumption of smelters and help to release new capacity. 

SMM learned that most smelters in Huayuan of Hunan province recovered in March and April from environmental suspension, and generated output of zinc ingot. 

Tighter supply of zinc concentrate narrowed margins at smelters in 2018. This, coupled with environmental pressure, drove smelters into suspension or production cuts from the middle of last year. In the first half of 2019, relocation of capacity at a large smelter and environmental impact continued to slow the growth in zinc output, and this kept inventories of refined zinc at lows, Liu added. 

SMM data showed that domestic output of refined zinc shrank 2.4% from 2017, and stood at 5.33 million mt last year. 

She forecasted that zinc concentrate TCs may keep at highs but have limited upward momentum in the latter half of 2019, as domestic demand from smelters recovers.

As of Tuesday April 2, TCs for domestic zinc concentrate rebounded to around 6,500 yuan/mt, up some 3,000 yuan/mt from a year earlier. Charges were in metal content. Offers of TCs for imported zinc concentrate stood at $240-260/dmt, up some $200/dmt from a year ago, according to SMM assessment. 

Liu expected domestic imports of zinc concentrate to exceed 3 million mt in physical content in 2019, as the overseas output of the material expands. In 2018, China imported some 2.97 million mt of zinc concentrate, up 21.5% on the year, she cited costumes data. 

While demand from the real estate and automobile industries moderates, the infrastructure sector will be the key to underpin downstream consumption of zinc in 2019, Liu believed. 

Driven by incentive policies on infrastructure, zinc galvanizing plants operated at a higher rate of 60.6% in January-March, up 13.8 percentage points from the same period in 2018, she added.