The Supply and Demand Imbalance of Zinc Unchanged 【SMM post-holiday review】

SHANGHAI, Oct (SMM) - On the macro front, the US ISM manufacturing PMI for September continued to improve, rising to 61.1% from 59.9% in August. The September manufacturing PMI stood at 58.6, the first time that it fell below 60 since March this year. China’s manufacturing PMI for September fell to 49.6, slightly below the 50 mark. The PMI readings of Europe and China both fell. In the US, the ADP employment data increased by 568,000 in September with an estimate of 430,000. The previous reading was revised from 374,000 to 340,000. The PPI in the Eurozone in August stood at 1.1% on a monthly basis, the lowest since April.

The zinc market still faces several major risks after the National Day:

1. The impact of domestic power rationing remains as the market focus. The power rationing intensified against zinc smelters in Yunnan, Hunan, and Guangxi before the National Day, and some smelters were shut down. If the power rationing continues, it will affect the supply of zinc ingots in south and east China. On the demand side, the impact of power rationing varied in different regions, and Jiangsu, Guangdong, Tianjin and Hebei suffered the most. Since the downstream consumption was scattered, it is difficult to quantify the impact to consumption as companies reported varying impacts. The impact to supply and demand can be assessed by observing the changes in inventory in the two weeks after the National Day holiday.

2. After the National Day, the fourth batch of national reserves will be launched, which may affect the post-holiday restocking demand of downstream companies.

3. The prices of overseas coal, electricity, natural gas and other energy sources continue to rise, and the production costs of industrial enterprises keep climbing. However, due to the low profits of zinc smelting, overseas zinc smelters may continue to reduce or suspend their production. 

On the whole, the imbalance between the supply and demand of zinc will remain in the short-term, and the market is still in the game. Considering the risks brought about by the overseas energy problems and the intensifying power rationing among domestic zinc smelters, the current zinc prices are unlikely to fall sharply.