Metals News
Zinc: macro sentiment boosts limited fundamentals to suppress further falls in futures prices
Jul 2,2019
Source:Wenhua Finance and Economics
The content below was translated by Tencent automatically for reference.

SMM News: the core point of view: the macro side of the G20 summit last week came positive, boosting market sentiment, however, before the formal landing of the Sino-US negotiation agreement, there are still many variables, can not be too optimistic, at the same time, the global economy is in a downward channel, in the long run is not conducive to metal prices. From the basic point of view, in the short term, Shanghai zinc changes little, smelter capacity bottleneck under the stimulus of high profits is about to break through, production rebounded sharply in May. Although the northern refineries still have routine maintenance from July to August, the supply trend remains unchanged. On the demand side, demand gradually weakened from July to August, and infrastructure consumption of zinc was limited. Inventory, LME minimum inventory inflection point is now, inventory doubled from the lowest point. Although the previous period of inventory decline, but the domestic circulation spot is more, spot rise discount to maintain weakness. And the lower reaches of the purchase volume is less, the demand is weak and the pressure is greater. Therefore, Shanghai zinc may continue to weaken after the impulse, the operating space is expected to be 19000 to 20300 yuan / ton, the operation is near the high layout of the empty order, stop loss of 20300 yuan / ton.

Macro analysis:

1. Resumption of Economic and Trade consultations between China and the United States at the G20 Summit

At the G20 summit, the heads of state of China and the United States met for 80 minutes, and the two heads of state agreed to resume economic and trade consultations on the basis of equality and mutual respect, and that the United States will no longer impose new tariffs on Chinese products, and that the economic and trade teams of the two countries will discuss specific issues.

Before that, the Sino-US trade war escalated again before the two sides reached an agreement, adding tariffs to each other, and the situation continued to escalate, making market expectations extremely pessimistic. Trump continued to yell to China that if Chinese leaders do not attend the G20 meeting, they will continue to raise taxes. At present, the resumption of negotiations is not too good in essence. The United States has put pressure on China in many aspects after the escalation of the trade war, and it also has a lot of pressure on itself. The momentum of domestic economic growth is weak. The US government also hopes to reach an agreement at an early date. Therefore, the resumption of negotiations is an inevitable event. As for the length of the negotiations and the final outcome of the negotiations, there is still greater uncertainty about the length of the negotiations and the final outcome of the negotiations. So the positive stimulus for non-ferrous metals can only be a moderation of short-term pessimism, unless the results of formal peace talks fall to the ground.

Manufacturing PMI dragged down by demand prices in February and June

In June, the PMI index was 49.4, which was mainly affected by demand and prices. From historical data, so far this year, except for March and April PMI index rose, the other four months, the manufacturing PMI index is in the contraction range. The main reason is that demand has fallen sharply due to trade frictions between China and the United States this year. The PMI production segment is still in the production expansion range, indicating that the manufacturing sector still has high production capacity, but the decline in the demand segment shows that demand is a serious drag on the manufacturing PMI index. From the point of view of the manufacturing industry, the daily consumption industry performs better. The non-manufacturing PMI index remained relatively high, and infrastructure and real estate investment supported non-manufacturing PMI. However, there is downward pressure on fixed asset investment in the second half of the year, which will have a certain impact on the PMI of non-manufacturing industries. At the G20 summit in Osaka at the end of June, China and the United States said they would resume negotiations and expected to see a "rush" in trade in the coming months, forming an upward support for the PMI index in the short term, but in the medium to long term, the trend of trade frictions has not changed.

3. The Federal Reserve turns to "pigeon" and expects to cut interest rates.

The Federal Reserve decided in June to leave interest rates unchanged, removing the expression of "patience" with interest rate policy in its policy statement, suggesting that interest rates would be cut this year, opening the door to future monetary easing. Expectations of interest rate cuts were further raised as US stocks retreated sharply in 2018 and some US macroeconomic data fell, particularly with unusually weak non-farm data in May. In addition, the latest Fed meeting hinted at preparing to cut interest rates for the first time in more than a decade, and the US is expected to enter the path of interest rate cuts in the second half of 2019, bearish the dollar index and provide some support for non-ferrous metals. However, as many central banks have turned "dove", so the dollar has been supported to some extent, the future needs to pay attention to the Fed interest rate cut process.

Fundamental analysis:

1. The shortage of zinc concentrate began to improve

According to the latest customs data, imports of zinc concentrate in May were about 264000 tons (physical tons), up 47.4 per cent from 179000 tons in April, reversing the downward trend in imports in the previous three months. The total amount of zinc concentrate imports in May was 1.633 billion, up 52.9% from the previous month. In May 2019, the import of refined zinc was 59300 tons, down 23.6 percent from the previous month, and increased by 0.3 percent over the same period last year. According to SMM statistics, the processing fee for domestic zinc ores in July was 6050 to 6600 yuan per ton, down 0.39 percent from the previous month, and the processing fee for imported zinc ores was 230,250 US dollars per ton, unchanged from the previous month.

2. The smelter made a lot of profits, and the maintenance ended ahead of schedule.

In May 2019, SMM China produced 480200 tons of refined zinc, an increase of 4.14 percent over the previous month and an increase of 13.49 percent over the same period last year. Benefiting from the huge profits from smelting, many enterprises have accelerated the pace of maintenance, and production has accelerated after the smelting bottleneck has been broken, and production is expected to increase by 21100 tons to 501300 tons in June from May. Recently, TC rose further, and after adding 2% to 8%, the profit of the smelter is already at an all-time high. According to the understanding of SMM, the production of zinc industry in Zhuzhou smelter and Hanzhong has been further restored, and the increment of Hunan is obvious. High-profit refinery compressed maintenance time, short-term supply-side capacity bottleneck is about to break through.

3. Downstream consumption is still not improving

From January to May 2019, the cumulative output of galvanized sheet of key enterprises in China was 8.914 million tons, down 2.3 per cent from the same period last year. From January to May, the cumulative sales of galvanized sheet was 8.754 million tons, down 2 per cent from the same period last year. At the end of May, the stock of galvanized sheet in key domestic enterprises was 318600 tons, down 27 per cent from the same period last year. Galvanized enterprises take the initiative to inventory acceleration, demand to maintain a weak situation. According to the SMM survey, the operating rate of galvanized enterprises in May was 81.13%, down 5.7% from the previous month and 5.46% from the same period last year. After gold, silver and silver, consumption weakens. In May, the operating rate of die-casting zinc alloy enterprises was 47.14%, down 7.4% from the previous month, down 3.54% from the same period last year, and the operating rate of zinc oxide in May was 54.91%, 0.54% lower than the previous month, and 0.53% higher than the same period last year.

Investment in infrastructure is showing signs of slowing. The growth rate of completed area is weak, and there is still no bright spot in the short-term real estate sector to promote the growth of downstream galvanized consumption. From January to May, the cumulative area of commercial housing sales nationwide decreased by 1.6 percent from the same period last year, an increase of 1.3 percentage points from the previous month; the cumulative area of new housing construction increased by 10.5 percent over the same period last year, down 2.6 percentage points from the previous month; and the cumulative area of housing construction increased by 8.8 percent over the same period last year.

In 2019, the cumulative output of cars in China from January to May was 10.179 million, down 14.1 per cent from the same period last year. The automobile production side continues to take the initiative to go to the warehouse, and the output remains low. From January to May, the cumulative growth rate of domestic air conditioning output was 7.98%. It can be found that in all downstream consumption areas, the only remarkable thing is the air conditioning industry, which has led to a good performance of zinc consumption so far this year, but the increment is limited, so it is difficult to promote the overall downstream consumption. The recovery in the output of household appliances has partly made up for the decline in demand for zinc for automobile use.

4. Inventories have been low for a long time, not enough to support prices

As of July 2, LME zinc stocks of 97000 tons, write-off warehouse receipts fell to 24%, LME stocks have recently doubled from the lowest. The domestic social stock is 160100 tons, and the zinc stock in the previous period is 79900 tons. In June, domestic social stocks increased by 10200 tons, and exchange zinc stocks totaled 20500 tons. According to SMM, inventories in the bonded area fell by 2200 tons to 91100 tons, falling for five weeks.

Market structure analysis

1. The spot discount is obvious.

Zinc spot discount gradually narrowed, as of February 2, Shanghai 0 # zinc ordinary July discount 60-discount 40 yuan / ton; Shuangyan newspaper discount 30-flat water, Shanghai 1 # zinc mainstream transaction 19680-19780 yuan / ton. Zinc spot rise discount is very obvious, with the accumulation of inventory, anti-set profitable.

2. Entrance window closed

The domestic zinc import window is closed, and the import loss shows signs of widening. As of June 28, the import loss of about 1278 short-term smelter capacity release bottleneck was broken, the short-term market still focused on the bet point of low inventory, the positive set reached a certain extreme value, you can try to reverse the operation. (source: Ning Zheng Futures)

For queries, please contact Frank LIU at
For more information on how to access our research reports, please email
Related Price

No Data