SHANGHAI, Jun 26 (SMM) – Upward momentum in Shanghai zinc prices will be limited in the short term as fundamentals remain weak even as lower inventories bolstered prices in the week to Wednesday June 26. An overall seasonal lull and higher production in July will keep fundamentals under pressure. 

Social inventories of refined zinc across Shanghai, Tianjin and Guangdong shrank over last weekend as lower futures prices, below the 20,000 yuan/mt level, prompted downstream consumers to stockpile. 

SHFE on-warrant zinc stocks, metal not earmarked for delivery from warehouses and available for investors, continued to fall by 3,569 mt to stand at 41,978 mt on Tuesday June 25, after a drop of 10,286 mt on Monday. But overall on-warrant inventories remained at highs, with stocks in Guangdong accounting for about 70%. This raised market concerns about a squeeze of short positions. 

The spot price spread between Shanghai and Tianjin expanded to 200 yuan/mt as of June 25, from flat last week, as premiums in Shanghai slid steeply while that in Tianjin held firm on downstream purchases. 

As high price spread may trigger a transfer of cargoes from Shanghai to Tianjin, greater arrivals in Tianjin may weigh on local spot premiums in the short term, SMM expects. 

Lower inventories and stable offers in Tianjin, which accounted for most of the domestic galvanising consumption, reflected strong demand and boosted market confidence. 

Maintenance scheduled across smelters in the north and continued suspension at Chengzhou Mining lowered the expectations of supply growth this month, and also supported prices. 

In the morning trading hours of Wednesday June 26, the most-liquid SHFE August contract traded rangebound between 20,000-20,100 yuan/mt, after gained 2.39% overnight to end at 19,935 yuan/mt.