SHANGHAI, Apr 24 (SMM) – Shanghai zinc prices are unlikely to fall below the 21,000 yuan/mt level as the peak consumption season continues and as supply has yet to expand substantially.
The most active June zinc contract on the Shanghai Futures Exchange lost 1.78% to close at 21,270 yuan/mt on Wednesday. Recent weak performance in SHFE zinc indicated that market focus has turned to a potential recovery in supply, as smelters chase decent ore treatment charges.
Supplies of refined zinc are widely expected to grow as production recovers from environmental restrictions and plant relocations, and as a greater mine supply lifts TCs and fuels production enthusiasm among smelters. Such an expectation has been reinforced by the restarts of some small plants.
A weaker LME counterpart also weighed on SHFE zinc. Deliveries of a total of about 20,000 mt to London Metal Exchange warehouses stemmed declines in LME zinc inventories, and weighed on London zinc prices since last week.
The premium of LME cash zinc over the three month contract, however, remained high after the deliveries. Such a firm backwardation structure on LME zinc reflected sustained tight supply.
While high cash premiums might trigger more deliveries to LME warehouses, deliverable cargoes are limited overseas. The LME cash premiums over the three month contract rose to a high of $125/mt in December, but LME warehouses did not see a large amount of deliveries, suggesting limited invisible inventories abroad.
SHFE zinc had been buoyed by a peak March-April consumption season that lowers inventories in China. Despite higher operating rates across zinc downstream plants, orders for zinc products failed to broadly improve. This slowed declines in inventories.
China has issued a slew of stimulus measures, including infrastructure push, since late 2018, and this might drive zinc consumption.