SHANGHAI, Jan 4 (SMM) - The electricity prices fell to recent lows due to warmer temperature in Europe last week. At the same time, the second pipeline of the Nord Stream 2 is about to be filled up, weakening the market's enthusiasm for trading on electricity prices. However, the German regulatory agency also noted that the Nord Stream 2 will not be certified in H1 2022. On the other hand, the United States and Russia will discuss the Ukrainian issue on January 10, which will also have an impact on European natural gas supply. Therefore, there are still many uncertainties in the European natural gas market. If the Nord Stream 2 fails to be approved in the short term, it will be difficult to fundamentally improve the power shortage issue. Smelters may extend production cuts if the electricity prices increase in Q1. In other words, the dynamics of geopolitical issues remain as the market focus, which will directly determine whether the electricity prices logic can continue to take effect. LME zinc is expected to move between $3,450-3,650/mt.

On SHFE zinc, the consumption weakened further and is expected to thin in mid-January. Some companies will take holidays in advance. However, there will also be reductions on the supply side. Sihuan plans to reduce the production by 30% from January to May in 2022. Jilang will not be able to resume the production in the short term and is expected to gradually recover after the Chinese New Year. Hanzhong is still under production reduction, and is unlikely to recover the production in the short term. On the other hand, the transportation of zinc ingots has been restricted by the worsening COVID-19 pandemic in Shaanxi. And the inflows of zinc ingots into Shanghai continued to be at a low level. The pivot for inventory accumulation was still out of sight. The inventory has fallen to a low level. SMM lowered the expectations for the accumulation of inventory in Q1 amid weak supply and demand. The inventory is likely to decline to a lower level sooner in 2022. On the whole, the inventory will accumulate in January, but SMM holds bullish outlook on zinc prices in the long run. 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 stood at 100-150 yuan/mt over the February contract.