SHANGHAI, Oct 11 (SMM) - The zinc prices have been on the uptrend trajectory entering September. The most-trade SHFE zinc contract reported 22370 yuan/mt as of September 30, up 0.92% in the month.

The performance of spots have fallen behind the futures. SMM 0# zinc ingot stood at 22600 yuan/mt as of Septmeber 30, up 0.8% in the month.
Fundamentals

Mine: The supply of global zinc concentrate has been tight in 2021. The output of domestic zinc concentrate has been rising since March, 2021, and the overall operating rates of concentrate plants have grown steadily as well. However, the imports of zinc concentrate has been low due to the closed import window and sea transport disruptions. As such, the supply has stayed tight. The TCs kept falling in September.

Smelting: The output of refined zinc in August stood at 518,900 mt, down 6,000 mt on the month according to SMM. In September, the output fell again due to the power rationing. But the released national reserves have eased the tight supply to certain degree.
Imports: The import losses kept expanding as the import window has been closed entering H2. The imports from Kazakhstan was influenced due to the COVID-19 pandemic in Alataw Pass. The imports in September is estimated to be less than 30,000 mt.

Inventory: The social inventory of zinc ingots stood at 119,800 mt as of September 30, which has been falling after set a record high at March 15, 2021.

Downstream Demand

Galvanising: The operating rates of galvanising plants dropped in September, and fell more significantly ahead of the National Day holiday due to power rationing and excessively high prices of ferrous materials. The inventory of finished products also declined slightly. The operating rates are expected to stay low in October, the traditional seasonal high, in light of multiple factors including the power rationing, heating season, the Winter Olympics, etc.

Die-casting zinc alloy: The operating rates of die-casting zinc alloy in H1 were better than 2020. However, the sector is unlikely to see heightened operating rates during the seasonal high amid sluggish export orders and modest orders before the Christmas. While according to SMM research, some companies have raised their operating rates, and the finished product inventory also rose.

Zinc oxide: The orders of zinc oxide companies fell in September as the production of tire companies were restricted due to power consumption control policies. The delivery has also been slow, which led to the increase of finished product inventories. Generally speaking, the demand of zinc oxide in September kept falling, and the demand is hard to pick up amid worries over a slowing economy.
Forecast of October
The recent focus has been on the overseas zinc smelters. The production costs surged amid the skyrocketing prices of national gases and coal-fired electricity in Eurozone. The Nyrstar (zinc smelter) in the Netherlands have reduced the production due to rising electricity prices. The worries over future energy supply may further bring down the operating rates of zinc smelters. SMM believes that the zinc prices may advance further under the current situation.
While in China, the demand and supply have both been weak. The smelters in Guangxi and Hunan have been greatly influenced by power rationing. While the downstream sector has also been affected by power rationing. The social inventory after the National Day holiday stood at 133,800 mt, an increase of 14,000 mt from before the holiday. The overall inventory has been at an absolutely low level, supporting zinc prices.

SMM believes that the zinc prices are expected to rise to as high as 14,000 yuan/mt if the overseas energy issue intensifies and the production of smelters reduces further.