Electricity Prices in Europe Pose Major Risk, Overseas Zinc Smelters Remain as the Market Focus

SHANGHAI, Dec 27 (SMM) – The market will be closed due to Christmas holiday from December 27 to 28. Focuses this week include the initial jobless claims in the week ended December 25 and the monthly rate of the existing home sales index in November in the United States; China’s official manufacturing PMI in December. On the events side, the European Central Bank will release an economic bulletin on December 30.

The comprehensive electricity prices in Europe soared to about €350/MWh, due to the maintenance of the nuclear power plant in French and the reduction of the power generation of the largest power plant in Germany last week. As such, some aluminium plants in Europe have also experienced production cuts, which has also amplified the concerns about the tight energy supply and electricity price. The market is worried that there will be events such as prolonged production cuts or expanded scale of production cuts in Q1 2022 after costs at smelters increase further, which will drive up the prices of zinc. LME zinc will stand firm before the biggest risk of electricity price is completely lifted. LME zinc prices are expected to move between $3450-3650/mt.

The consumption weakened after zinc prices soared. The orders of die-casting companies have significantly weakened after zinc prices rose sharply, and the export orders have become muted. As such, some die-casting companies planned to suspend the production in early January. Most of the small and medium-sized galvanising plants have stopped the production due to environmental protection issues in Tangshan, and large enterprises are expected to reduce the output by more than 50% in January. The production of the remaining enterprises in north China is also expected to be affected by the Winter Olympics in January. The inventory is likely to rise due to muted consumption. The SHFE/LME price ratio is likely to decline. The absolute price will still be driven by overseas fundamentals. It is recommended not to hold short positions. The most-traded SHFE zinc prices are expected to stand at 23,700-24,600 yuan/mt this week, and spot premiums of Shanghai zinc will stand between -20 - 20 yuan/mt over the January contract.