Analysis: Macro factors have pushed zinc prices to remain firm, how will zinc fundamentals change in H2?

SHANGHAI, Aug 10 (SMM) —Domestic zinc concentrate supply has tightened this year as COVID-19 drove mining companies across Peru and Mexico to halt production. This, combined with sharp declines in domestic zinc concentrate production, lowered treatment charges (TCs) from a high seen early this year. Large quantities of shipments from other countries pushed China’s zinc concentrate imports to a record high in April.

Accumulated imports in H1 increased 42.4% on the year even as suspensions at overseas mines caused imports in June to fall to 213,000 mt, the lowest in H1. As overseas mines resumed production, zinc concentrate imports from Peru arrived in China in late July. Monthly zinc concentrate imports in H2 are expected to stand at 300,000-350,000 mt.

COVID-19 had a significant impact on domestic zinc concentrate production. Some of the mines in Xinjiang and Tibet extended production halts, resuming production in May. Some of the mines cut or suspended production between June and July due to the wet season. Operating rates at domestic zinc mines stood at a four-year low this year.

Some of the new capacities were forced to delay commissioning due to COVID-19. Overseas new capacity is estimated at 328,000 mt in 2020. Global zinc concentrate supply is likely to see a surplus of 904,300 mt this year.

Domestic zinc ingot output is expected to increase to a high level in H2 in view of eased raw material tightness, the completion of maintenance and high profits. Domestic zinc concentrate supply will be ample in Q3 and Q4 and raw material inventories at smelters have returned to normal levels (30 days). TCs of domestic and imported zinc concentrate rebounded.

On the consumption side, galvanising consumption is promising. Infrastructure construction investment in H2 is expected to see a double-figure increase, and the “technology promotion in rural regions” will also boost automobile and home appliance consumption. China’s special bond issue stands at 3.75 trillion yuan this year, with a much higher proportion in infrastructure construction.

Die-casting zinc alloy exports recovered after the lifting of lockdowns. Exports to Southeast Asia from south China are picking up.

Production at zinc oxide producers is stable amid strong tyre demand. This combined with improved export orders will bolster zinc oxide consumption. Demand from ceramics and coatings also recovered. Other end-user sectors are stable.

The high season will drive inventory decline in the near term, keeping domestic zinc ingot demand and supply balanced.