Output recovery, slow season to pressure zinc prices in Jul

SHANGHAI, Jul 2 (SMM) – Support from fundamentals for Shanghai zinc prices will weaken in July as production recovers and downstream consumption enters a seasonal lull.

Lower prices of zinc, below 20,000 yuan/mt, narrowed profit margins at miners last month, and grew the expectations of lower concentrate treatment charges (TCs). However, maintenance at northern smelters in July-August is expected to depress demand and support TCs. 

Miners and smelters remained in a deadlock over TCs for July. Current TCs remain at highs above 6,000 yuan/mt, which had limited impact on production enthusiasm at smelters. 

A traditional slow season in July will take a toll on demand from key downstream sectors of galvanising, casting, and alloy. Galvanising plants continued to face high costs of raw materials as steel prices surged. Trade conflicts also dragged on overseas orders for zinc alloy across exporters in the south. 

Output recovery, poor consumption is set to grow stocks of zinc, but regular maintenance in the north will slow the inventory buildup in July. Small inflows of seaborne materials in a closed import arbitrage window will also cap the increase in zinc social inventories in the short term. 

The most-active SHFE August zinc contract is expected to consolidate around 20,000 yuan/mt in the near term, underpinned by improved macroeconomic sentiment.