Shanghai zinc rallies on Feb rate cut expectations, low inventories

SHANGHAI, Jul 17 (SMM) – Shanghai zinc trended upwards this week, propelled by its stronger LME counterpart on growing expectations of Fed rate cuts and the absence of a substantial rebound in domestic social inventories.

The most active September contract on the Shanghai Futures Exchange rose on Wednesday for a third consecutive day, gaining 0.57% to close at 19,355 yuan/mt, after hitting a nearly two-week high of 19,550 yuan/mt overnight.

The US central bank is expected to embark on interest rate cuts at the Federal Reserve’s policy meeting later this month. This buoyed London zinc this week, followed by gains in Shanghai zinc.

On the fundamentals front, social inventories of refined zinc in China have yet to see a substantial rebound, which also lent support to prices.

SMM data showed that stocks across Shanghai, Tianjin and Guangdong decreased by 200 mt from Friday July 12 and by 1,700 mt from Monday July 8 to stand at 146,300 mt as of Monday July 15.

Summer maintenance at some smelters and bargain-hunting purchases by downstream consumers deterred social inventories from sharply ramping up.

Inventories, however, are expected to grow as supply will expand after smelters recover from maintenance and as overall consumption is weak in a low season.

This is set to weigh on Shanghai zinc, with strength at the 19,000 yuan/mt level under scrutiny.