2021 zinc inventory "ups and downs" where is the peak in the first quarter of 2022? [annual Review]

SMM, Jan. 14: looking back at the zinc market in 2021, zinc prices have come out of a roller coaster in a steady state, and the first rise of the year's limit, which was caught off guard in mid-October, also sparked heated debate in the industry. At the same time, the domestic zinc ingot inventory, but also out of the lead inventory diametrically opposite trend.

Review and Prospect of LME Zinc inventory in 2021

The road of recovery of overseas zinc smelters in 2021 is not smooth. Under the influence of the "long tail" effect of the epidemic, the road of recovery of overseas smelters is beset with difficulties, especially the zinc smelters in Europe. Under the combined effect of the weaker-than-expected recovery of zinc smelters, continued strong consumer performance, and subsequent labor shortages, high freight rates, soaring energy costs and the supply chain, LME zinc inventories showed a trend of destocking as a whole.

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However, in the context of the continuous destocking of LME inventory in Europe and the United States, LME Asian inventory is less disturbed due to the recovery process, superimposed by the relatively stable growth rate of demand in Asia, and LME Asian inventory destocking is slow. In December, Asian inventories entered the slow accumulation pool against the backdrop of three consecutive trading days in Singapore. But even so, it still failed to change the trend of overseas consolidation and destocking. As of December 31, LME zinc stocks stood at 199575 tons, compared with 2500 tons at the beginning of the year.

SMM believes that the energy crisis, the core issue affecting overseas zinc ingot supply, may still be difficult to solve in the first quarter of 2022, so it is expected that LME inventories in Europe and the United States may continue to be slightly de-stocked in early 2022.

Review of domestic Zinc Ingot inventory in 2021

Different from the situation that the domestic lead ingot inventory once went out of the "scissors gap" with the overseas inventory, the trend of domestic SMM seven zinc ingot inventory is basically similar to that of overseas. Domestic zinc ingot inventory is mainly affected by inventory in Shanghai, Tianjin and Guangdong. From the trend of SMM zinc ingot inventory, from February to mid-March in 2021, the weekly inventory of zinc ingots in seven places in China shows a cumulative trend, mainly due to the Spring Festival holiday, the downstream is basically in a state of holiday, but most of the smelters are still in normal production resulting in a significant increase in inventory. Although the downstream after the festival to resume production, but mostly to digest inventory, demand is far less than inventory increment.

Data source: SMM database

This situation continued until late March, with the decline in zinc prices, stocks in Guangdong and Tianjin declined significantly, driving domestic zinc ingot inventory to the warehouse. In the second quarter, Shanghai and Guangdong continued to go to the warehouse, while Tianjin was also affected by the maintenance of smelters in Inner Mongolia, the inventory decreased significantly, and the domestic zinc ingot inventory decreased significantly in the second quarter. As of July 2, 2021, the weekly inventory of SMM seven zinc ingots fell to 112900 tons, the lowest since January 20, 2020.

In the third quarter, even under the background of the state dumping and storing zinc ingots, the increase in domestic zinc ingot inventory is not very obvious, while smelters in Guangxi and Yunnan have intensified power production restrictions because of local power shortages. Guangdong inventory has also dropped to less than 10,000 tons. Until the beginning of the fourth quarter, there was still a power cut in Guangxi, and zinc prices were stimulated by the news that overseas smelters reduced production and stopped production. Futures prices soared, and downstream enterprises in Guangdong had to reduce production to deal with the situation at that time. Under the shrinking market demand, inventory continued to accumulate. However, under the domestic "double control of energy consumption" policy in Tianjin, the power restriction policy occurs frequently, and the northern smelter also has varying degrees of influence, while Inner Mongolia Chihong stops production due to safety accidents, superimposing the effects of extreme weather and epidemic situation. The production and transportation of northern smelters are limited, and inventory has dropped significantly.

Generally speaking, the inventory of domestic zinc ingots will be removed in 2021. As of December 31, SMM's weekly zinc ingot inventory totaled 120100 tons, down 18.63% from 27500 tons at the beginning of the year.

Prospect of domestic inventory change in the first quarter of 2022

Looking forward to 2022, it is still difficult for domestic smelters to increase production in the first quarter. SMM expects domestic refined zinc production to increase by 100 tons to 513400 tons in January 2022, basically the same as in December 2021. According to the investigation, the main increment of refined zinc in January is the resumption of production after overhaul of Wenshan zinc indium and the increase of production in Gansu refinery; the other major reduction is due to the fact that some small smelters in Hunan plan to enter the Spring Festival shutdown period around mid-January. As a result of the Spring Festival holiday in February, recycled zinc enterprises in Hunan and Sichuan plan to reduce production during the Spring Festival holiday, and the resumption of production will be after mid-February, and refined zinc production is expected to be reduced by 11000 tons month-on-month. Under the influence of falling imports of zinc and low domestic production, there has been no accumulation of domestic stocks before the Spring Festival holiday, which SMM expects to be about 20, 000 tons in the next two weeks. The accumulated stock in the first quarter is expected to be about 10-130000 tons, which means that the inventory peak in 2022 will be relatively low in recent years. If the consumer returns normally after the end of the year, the speed of de-stocking will be accelerated, and domestic inventory will return to a low level again.

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