Zinc Price Forecast: China Consumption and Inventory Are Worthy of Attention

SHANGHAI, Feb 21 (SMM) - Focuses of this week shall include the initial value of the manufacturing PMI in February, the monthly rate of CPI in January, the economic sentiment index in February in the eurozone; the annualised total number of new house sales January in the US; one-year loan market quotation rate until February 21 2022 in China. This Friday, ECB President Christine Lagarde will hold a press conference after the Eurogroup meeting.

LME zinc: The biggest risk last week was the geopolitical issue in Ukraine. Russia, Ukraine, Europe, and the United States were still in a stalemate. News even came that there was the use of weapons in the early stage. As of now, the result is still ambiguous. However, frankly speaking, we believe that there will be no war but constant disputes in Ukraine, which is a blow to the market. The impact on the fundamentals mainly depends on whether the natural gas problem in Europe will be eliminated out of Ukraine Issues. Judging from the recent withdrawal of funds from overseas zinc futures market, the influence of natural gas is weakening. However, all of these will end at a certain point in the second quarter, which means that we are faced with far-reaching concerns but no immediate ones. What needs to be paid attention to in the future is that apart from Ukraine issues, whether new problems would emerge in zinc fundamentals (mining and consumption). LME zinc prices are expected to rise and stand at $3,550~3750/mt this week.

In terms of SHFE zinc prices, the market should be concerned about zinc concentrate, which is still short of supply. On the smelting side, the expected output in February is relatively low at 453,000 mt. Due to low raw material inventories and poor profits, some small and medium-sized smelters in Hunan province may resume the production later than expected, which will reduce the output in March. At the same time, in light of limited imports and the reduction of long-term imports orders of zinc ingots, the import volume in the first quarter is expected to be low year-on-year. In summary, the pressure on the domestic supply side is not great, and the main concern is that whether the demand will recover in the future. The in-plant raw material inventory across downstream manufactures was at a low level compared with the previous years, which means that with terminal orders returning and operating rates of downstream enterprises rising, the company's demand for raw materials will be directly reflects on falling social inventories. In the future, the market should focus on the changes of social inventory. The most-traded SHFE contracts prices are expected to stand at 24,800~25,600 yuan/mt this week, spot premiums will stand between 30~80 yuan/mt over the March contract.