SHANGHAI, Jun 13 (SMM) – SMM expects destocking inclination across sellers and sluggish downstream demand to further expand the discounts of spot zinc in Tianjin this week, after discounts grew to 150 yuan/mt over the SHFE June contract in the week to Wednesday June 12.
Greater backwardation prompted spot zinc sellers in Tianjin to clear inventories ahead of the delivery for the SHFE June contract, to lock in profits, and this accounted for the rapid gains in discounts.
The prospect of a production recovery intensified the backwardation in SHFE zinc contracts, as the price spread between the June and July contract widened to 600 yuan/mt as of June 12, from 365 yuan/mt on June 3.
After delivery, relatively ample supply of refined zinc will unable to underpin a high premium of 500 yuan/mt against the SHFE July contract, the market will refocus on fundamentals. Limited demand from traders will also accelerate the decline in spot premiums.
Downstream consumption from the galvanising sector weakened in May after supportive policies accelerated the release of demand in April. Higher steel prices raised costs at galvanising producers and drove them to cut production or suspend last month.
SMM retains a pessimistic outlook on zinc consumption through June as pressure from high costs barely eased across galvanising plants, and a seasonal lull will further drag on downstream orders.