Supply recovery, weak demand to cap upside of Shanghai zinc in Aug

SHANGHAI, Jul 31 (SMM) – Expectations of an inventory buildup on supply recovery and continued weak consumption are expected to cap any upward room in Shanghai zinc prices in August, after the absence of a substantial rebound in domestic social stocks propelled prices in July. 

Eased optimism from the revived US-China trade talks and an expected interest rate cut by the US Federal Reserve will also limit the price rebound.

A number of major zinc smelters are scheduled to recover from maintenance in August, which grew the prospect of a better-supplied market. However, a pickup in downstream consumption in late-August could limit the growth in inventories in the short term. 

Seasonality considerably dampened downstream demand in the galvanising and zinc die-casting alloy sectors in July, and the impact may continue for much of August, while the zinc oxide industry performed steadily. 

SMM raised its August’s forecasts for domestic refined zinc output by some 10,000 mt, from its previous estimates of 508,200 mt. 

We see the most-liquid SHFE September contract trading between 19,200-19,800 yuan/mt in August. 

In July, supply of refined zinc expanded slower than expected, pressured by new maintenance in the north and the second round of nationwide environmental probe. Arrivals of seaborne materials barely contributed to July’s supply, as the import arbitrage window kept closed for much of the month. 

Slow supply growth, low inventories buoyed the most-active SHFE September contract to a high of 19,785 yuan/mt in late-July, above the 40-day moving average, after prices fell below the crucial 19,000 yuan/mt level to a low of 18,925 yuan/mt in early-July.