[SMM Analysis] the zinc oxide market faces multiple challenges. What is the price trend of zinc oxide next year?

SMM12, 27 March:

First, increasing policy pressure on the zinc oxide market is facing severe challenges

The increase of the policy gives the zinc oxide industry a severe challenge. The active withdrawal of state-owned enterprises from 2008 to 2014 is the heyday of the development of private enterprises. However, in 2015, the new environmental protection law was implemented, environmental laws and regulations were issued intensively, Hebei distribution centers were forced to withdraw, and the release of zinc oxide production was limited. In 2016, the State amended the Law on the Prevention and Control of Air pollution to increase penalties for illegal acts. Hebei, Shandong, Jiangsu and other provinces and cities have adopted relevant prevention and control regulations, which began to be implemented in March 2016. Among them, Shandong, Jiangsu and Hebei are concentrated places of zinc oxide enterprises, and their zinc oxide production capacity accounts for 22%, 20% and 19% of the whole country respectively. In August 2016, the G20 environmental protection, Hangzhou, Wuxi and other places zinc oxide plant suffered an environmental storm, Hangzhou Fuyang zinc oxide plant shut down from August 24 to September 6, involving production capacity of about 51200 tons / year, SMM zinc oxide operation rate dropped by 60% in August, 2016-2018, Shandong distribution center forced exit, part of Jiangsu distribution center forced withdrawal, new capacity construction began to be put into production one after another. In 2019, large-scale private enterprises withdrew, sewage discharge permits were comprehensively recommended, industrial policy changed from access to regulation, and historical changes in the zinc oxide industry continued to deepen.

Second, the Sino-US trade war suppresses the demand for tire exports.

The uncertainty of trade frictions between China and the United States has almost occupied the whole of 2019. Since September 24, 2018, the United States has imposed tariffs of 10 percent on US $200 billion of Chinese products exported to the United States, and then has to take other tariff escalation measures. China has to take counter-measures. Under the sawing of the game between the two sides, the impact on almost all tires and rubber industries in China is enormous. Zinc oxide direct exports and tire exports continued last year's downward trend, the export end is weak. However, the tire plate should not be overly bearish. First, tire manufacturing is not a dominant industry in the United States, and production capacity cannot increase rapidly. If it is not imported from China, it can only be imported from a third-party market. Second, Chinese tire enterprises can set up factories overseas and export them directly to the United States from foreign factories. At present, there are 11 Chinese enterprises that have set up or are going to build factories overseas. The United States cannot force away Chinese tires entirely by raising taxes. Third, Chinese tire enterprises rely very little on American technology and raw materials. China is the second largest tire market in the world and the main growth point of the global economy is in Asia. The trend of overseas tire factories in China may be a drag on domestic demand for zinc oxide, which puts pressure on the zinc oxide market.

Third, car production and sales showed a double-digit decline, dragging down the entire zinc oxide market

Since October last year, the car production and sales rate has changed from positive to negative, and since then, the rate of decline has been expanding. Since the beginning of this year, both car production and sales have reached a double-digit decline, with the highest monthly decline of 14.09% for the year and 15.73% for the year. The auto industry has entered a stage of low-speed adjustment, superimposed export orders continue to be weak, and under the pressure of both sides, the downturn in the zinc oxide market is difficult to change.

Looking forward to next year, the low fluctuation of zinc oxide price is the main theme, there is no possibility of a significant increase, and whether zinc oxide can get out of the trough mainly depends on the development of the trade situation. In addition, the issue of environmental protection is a top priority, which is a matter of great concern to enterprises. At the beginning of this year, the focus of national policy has shifted from access to regulation, environmental protection is no longer a one-off issue, the second is the whole process, permanent problems. The end of 2020 is the centralized cash period for many environmental policies. Environmental pressure has partly affected the supply of zinc oxide, but weak consumption has weighed on zinc oxide prices more significantly, and action on zinc oxide prices is expected to be inadequate next year.