SHANGHAI, May 9 (SMM) – With uncertain outlook for consumption and an upcoming increase in supply, Shanghai zinc prices are unlikely to find comfort from fundamentals amid the renewed escalation of trade spat between the US and China.

The Sunday threat from US President Donald Trump to hike tariffs on Chinese goods on Friday and impose fresh levies soon has sent global markets reeling, with zinc prices saw the biggest losses among Shanghai nonferrous metals.

China said on Wednesday that it will take "necessary countermeasures" against the US if Washington follows through on its tariff increase threat.

The most active zinc contract on the Shanghai Futures Exchange dropped 1.7% on Wednesday and extended its declines by 1.4% as of CST 10:55 Thursday.

A breakthrough in Chinese zinc capacity bottlenecks is around the corner. Suspended smelters in Huayuan of Hunan province have been gradually recovering since April and are likely to reach full capacity soon. Production lines for refined zinc at Zhuzhou’s new smelter are about to go into operation, while Hanzhong is stepping up production as planned.

With limited smelters scheduled to undertake maintenance in May, refined zinc supply in China is likely to peak in May-June.

Uncertainties about consumption could also hardly support market sentiment. Demand is likely to slightly cool in May after a peak season in March-April, while the housing and auto markets remain sluggish. Zinc consumption has yet to receive a boost from the government’s infrastructure push.

Weak London zinc is also unlikely to provide support to its Shanghai counterpart. Zinc inventories overseas have climbed from record lows after high backwardation on the London Metal Exchange zinc spurred a slew of deliveries to LME warehouses. The backwardation structure remained firm, which reinforced the expectations for more deliveries to LME warehouses.

The trade war fear grows downward pressure on Chinese yuan, and this is also likely to weigh on London zinc.