SHANGHAI, Sep 14 (SMM) - SMM believes that the contradictions in the zinc market in the second half of the year are not prominent, and the supply of zinc ore and zinc ingots is expected to maintain a tight balance. In the future, it is necessary to continue to pay attention to the macro aspects and the news on release of national reserves and its influences on zinc inventory.
1. The global zinc concentrate tightly balanced in 2021, increase of ore processing fee will encounter a bottleneck
Zinc ore processing fees increase met obstacles
According to the SMM survey, the monthly output of domestic zinc concentrate has continued to rise since March 2021, and the overall operating rates have steadily increased.
After the raw material inventory of the smelters increased in June-July, and the bargaining power of zinc ore processing fee was transferred to the smelter, resulting in the rising in processing fees. However, the increase in zinc ore processing fees was hindered in September with diverged situations in different regions.
The profit margin of zinc concentrate has risen to above 7,000 yuan per metal mt based on the current zinc prices. However, domestic mines will increase output in light of high profits, and the mining activity is largely affected by seasonality and national policies.
Domestic zinc ore inventories have fallen slightly
According to SMM, the cumulative volume of zinc ore imports fell year-on-year mainly due to intensive competitiveness in Aisa and global transport issues.
The current imports were basically ordered by smelters, with nearly zero made by traders or retail sales.
Zinc ore grade declined in 2020
In 2020, due to the impact of the pandemic and the rainy season, the decline of zinc mine grade, environmental protection rectification and other factors, the overall output of zinc ores has declined. Among them, the decline of zinc ore grade has become one of the main reasons.
New expansion projects of zinc mines are mianly located in overseas market in 2021
According to SMM, most of the new expansion projects of zinc mines in 2021 are located in overseas areas. After the expansion is completed, the global zinc concentrate output is expected to increase by 250,000 metal tons. In China the new zinc concentrate output is expected to reach 203,000 metal tons in 2021, and the mines in the Xiangxi region of Hunan are expected to resume production at the end of the year.
2. The impact of power rationing at smelters continued in H2
The output of refined zinc in China is likely to stand at 6.1 million mt.
At the beginning of 2021, due to the shortage of zinc ores, some smelters reduced production. The impact of the recent power rationing in May and the regular maintenance of some smelters have contained the extend of operating capacity.
The production profit of the smelter excluding by-product income currently stood at around 700 yuan/mt. The impact of power rationing in Guangxi has ended, and the operating rates have resumed growth. In the fourth quarter, the market shall pay attention to whether the smelters have plans to catch up with the annual production plan.
The proportion of alloy production in smelters increased in 2021
SMM believed that the proportion of alloy production in smelters has increased in 2021 by comparing the production proportions of zinc ingots and alloys in major smelters in 2020 and 2021.
Imports may fall to a low level in the second half of the year
The import volume of zinc ingots in the first half of the year increased year-on-year. However, in the second half of the year, as the SHFE/LME price ratio fell, the losses of refined zinc imports increased. It is expected that the import of zinc ingots in the second half of the year will fall back to a low level.
The release of secondary zinc production capacity in 2021 is delayed, and the increase will be realised next year
Most of the newly added production capacity of domestic refined zinc enterprises will be commissioned after August, and the release of capacity will be delayed.
In addition, it is worth mentioning that according to SMM data, the main increase in output of global refined zinc in 2021 will still be contributed by domestic smelters, and the new increase in global refining is expected to be about 2.5%.
3. The demand side is about to enter the peak season, and export orders may hardly show dazzling performance
According to SMM survey, the galvanised structural parts enterprises continued to suffer losses amid soaring raw materials prices and low sales prices. The profit of galvanised sheet was relatively good, but the profit has also been in a state of contraction recently. It is expected that the subsequent galvanising consumption will show a lacklustre seasonal high.
The high pressures on the finished products of the galvanising enterprises has led to its controlled production operation
According to SMM, the pressures on the finished products of the galvanising plants were high entering 2021, which directly led to the control of production and operation, and the overall operating rates were in a downward trend.
Die-casting sector lacked momentum
The operating rates of die-casting zinc alloy enterprises in the first half of the year were better than last year. However, export orders were currently poor due to shipping problems. The orders before Christmas have not increased significantly.
In the long run, there is a strong negative correlation between inventory and die-casting operating rates in Guangdong. In the second half of this year, due to the electricity rationing in Guangxi and Yunnan, the output of zinc ingots in Guangdong fell, resulting in low inventory. With the current recovery of smelter production, inventories in Guangdong are gradually recovering.
According to a recent survey by SMM, the operating rates of some die-casting companies have increased, and the inventory of finished products has also increased compared with the previous sessions.
Zinc oxide operating rates are expected to trend down
SMM research shows that tire production has declined, and the operating rates of zinc oxide have also fallen slightly. It is expected that the operating rates of zinc oxide will be weak in the future.
A small surplus of supply is expected throughout the year
According to the supply-demand balance calculated by SMM, the global mines still maintain tightly balanced operations, and only a small amount of surplus in supply is expected throughout the year.
4. The supply and demand in the second half of the year are both weak
The anchor point of on-market capital transactions lies in the mines
SMM predicts that the processing fees will hardly fluctuate wildly in 2021. However, if the number of long-term import orders signed by the smelters in the third quarter are sufficient, the smelters will have a relatively high ore processing fee when the inventory is relatively sufficient. In the fourth quarter, the smelters will face the pressure of winter storage, and the processing fee will face downward pressure again.
Zinc ingot supply and demand pattern will determine the price valuation
The supply and demand pattern of zinc ingots will determine the valuation of zinc prices.
According to the changes in zinc ingot inventory this year, it can be seen that in the second half of this year, the released national reserves will lead to slight increase in social inventories.
Supply highly volatile in light of power rationing and released national reserves
Under the combined influence of multiple factors such as power rationing and releasing of reserves, the future supply will be highly volatile. In the context of strong reality and weak expectations, SMM believes that there is no chance for the monthly spread o domestic zinc to make a profit. Contrasts will also be drawn between domestic consumption during the off-season and the recovery of overseas consumption from June to August.
Released government reserves of zinc ingots to supplment market supply
the State Reserve Bureau has released several batches of zinc ingots to supplement market supply, which is expected to continue in H2.
Thus, the contradictions in the zinc market in the second half of the year are not prominent, and the supply ore and zinc ingots is expected to maintain a tight balance. In the future, it is necessary to continue to pay attention to the macro aspects and the news on release of national reserves and its influences on zinc inventory.
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