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Zinc price maintains range fluctuation
Jul 20,2020 09:38CST
translation
Source:Futures daily
The content below was translated by Tencent automatically for reference.

SMM News: it is reported that zinc prices in the first half of the year interpreted a deep V trend, at the beginning of the year due to the epidemic triggered market panic, Lun zinc prices plummeted and hit a phased low of 1763 US dollars / ton. Since the second quarter, on the one hand, due to the serious spread of the overseas epidemic, many mines in South America have been infected or closed or forced to stop production; on the other hand, as governments have released a large amount of liquidity to rescue the market and raised asset prices, zinc prices began to rebound sharply, gradually rebounding and returning to the first line of 2200 US dollars / ton.

Gradual recovery of zinc mine

The tension in the raw material market has eased, and the processing fee for zinc ore in the forward shipping period of imported ore has increased gradually from 140 US dollars / ton at the beginning of the second quarter to 180 US dollars / ton. In addition, the rebound in zinc prices has also stimulated the repair of domestic mine production. Under the current zinc price situation and TC quotation, through rough calculation, zinc mine profits have returned to the level of the same period in 2019. The generous profit margin makes the mine have a higher tolerance for increasing TC.

In the third quarter, the raw material market gradually recovered, on the one hand, enterprise raw material inventory replenishment, improve raw material security; on the other hand, both TC and zinc price repair give smelters more profits and improve production enthusiasm. Compared with the first half of the year, domestic output will increase significantly in the second half of the year. It is worth noting that although we expect smelting profits to be offset by a rebound in TC in the second half of the year, the supply of zinc ore has been significantly reduced this year, so that it can no longer provide substantial production profits for smelting as it did in the second half of last year. Even if the output of zinc ingots in the second half of the year is qualitatively higher than that in the first half of the year, through the micro-investigation of the annual production plans of smelting enterprises, we find that many enterprises have plans to reduce this year's annual output, combined with the actual output that has been realized in the first half of the year, the domestic smelting output in 2020 is expected to be no increase compared with 2019, or even 20,000 tons lower than the same period last year.

The expectation of future consumption is optimistic.

Reviewing the growth rate of zinc consumption in the past 15 years, from the time point of trough-peak fluctuation of consumption growth, it can match the trough / peak time point of infrastructure investment. In other words, the change of infrastructure growth rate can dominate the variables of zinc consumption growth rate, of which three major infrastructure investments include: electric power, transportation, water conservancy and public facilities construction.

Taking a closer look at the data of major categories of infrastructure, according to the National Development and Reform Commission, the declared amount of capital construction increased by 97.9% in the first half of the year compared with the same period last year. From January to June, the monthly reported amount of capital construction increased by-52.9%,-17.2%, 331.7%, 208.6%, 97.2%, and 42.9%, respectively. Although the growth rate slowed down in June, it still maintained a rather high growth trend.

From the perspective of industry categories, the national PPP bid-winning projects, transportation accounted for 33%, municipal accounted for 30%, accounting for 60% of all projects; and through the split of different stages of the project, it was found that the landing rate of PPP projects was steadily increasing. From the point of view of PPP, the traffic category accounts for 33.64% of the bid-winning projects, and the municipal category accounts for 30.06%, totaling more than 60% of the bid-winning projects.

From the above point of view, it can be shown that infrastructure will maintain a relatively good growth momentum in the second half of the year and even next year, so zinc consumption can also maintain growth with the support of infrastructure.

To sum up, zinc smelting output caused by loose raw materials has increased, while consumption has maintained its current growth rate with the support of infrastructure. The global zinc market has a surplus of more than 100000 tons in the second half of the year, without sharp contradictions, but there are structural opportunities. In the second half of the year, there will be a shortfall of 400000 tons before China imports, either by a large margin, or by opening up import profits, so cross-market anti-hedging can be established when the price comparison can be considered, or cross-period positive sets will be established when the basis is flat. It is expected that zinc prices may fluctuate in a narrow range for a long time. The core operating range of Lun zinc is US $2,300 per ton, with an average price of US $2150 per ton, while the operating range of the main contract for zinc in Shanghai is 16,000 won per ton, with an average price of 17900 yuan per ton.

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