Zinc Fundamentals to Improve, Market Needs not be Overly Pessimistic about Zinc Prices

SHANGHAI, Nov 8 (SMM) – Focus of this week should include: PPI monthly rate in October in America, the ZEW Indicator of Economic Sentiment for the eurozone; China M2 currency supply annual rate in October and the annual rate of China's CPI in October. In terms of events, the Fed Chairman Powell will deliver a speech this Tuesday at a diversity conference jointly organised by the Federal Reserve, the European Central Bank and the Bank of Canada, and European Central Bank President Lagarde will deliver a speech at the European Central Bank’s Banking Regulatory Forum.

The FOMC meeting last week decided to start tapering debt purchase in November. For interest rate hikes, the Fed still emphasised that it will remain patient and await the improvement of employment and other data. The overall remarks are dovish, and the macro sentiment has become moderate to positive. European electricity prices are still hovering at a high level. High electricity prices have caused European smelters to produce with losses. However, the production status at smelters can only be confirmed through market news. The changes in European and American inventories remain as the market focus. LME inventory in Europe and America kept declining slightly last week. The stocks in Europe stood at 9,575 mt while that in America recorded 53,350 mt.  LME cash-to-three-month backwardation fell to $45/mt. LME zinc is expected to move between $3,130-3,400/mt this week.

Market investors need not be bearish about SHFE zinc. Zinc concentrate in Inner Mongolia has tightened amid power rationing. At the same time, the current transportation restrictions on Covid-19 pandemic have greatly increased the capital and time costs of zinc concentrate, resulting in further reduction of TCs. The output at smelters is unlikely to return to peak as the production costs at smelters increased on rising industrial electricity prices across various regions, and some smelters have to control their production. The power rationing policy in parts of Gansu and Inner Mongolia is expected to continue until the end of the year, resulting in a reduction in the output of local smelters. The output is expected to stand at 520,000 mt in November. SMM holds positive outlook on the resilience of consumption. Domestic social inventory will continued to decline as the consumption gradually recovers. The most-traded SHFE contracts prices are expected to stand at 22,500-24,000 yuan/mt this week, and spot premiums of Shanghai zinc stood at 30-60 yuan/mt over the December contract.