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How Are the Downstream Sectors Reacting to Zinc Prices that Constantly Hit New Highs?

iconMar 8, 2022 16:37
Source:SMM
Zinc prices constantly hit new highs in March under the support of rising natural gas and electricity prices in the Europe amid energy supply concerns caused by geopolitical tensions.

SHANGHAI, Mar 8 (SMM) - Zinc prices constantly hit new highs in March under the support of rising natural gas and electricity prices in the Europe amid energy supply concerns caused by geopolitical tensions. Zinc, as a hedging metal for nickel, also recorded historical highs after LME nickel saw ballooning position holdings. Though SHFE zinc underperformed LME zinc, the former touched limit up at 28,440 yuan/mt amid skyrocketing LME zinc and refreshed the previous high seen in October 2021.

In the spot market, discounts continued to expand amid rising SHFE zinc prices, and SMM has done a brief survey as how the downstream reacts in terms of production and demand.

Galvanising: The galvanising market participants were inclined to purchase when the prices were on the rise amid rising ferrous products prices, and the sales situation has been improving. On the other hand, however, the surging raw materials prices have squeezed the profits of galvanised pipe. Some pipe manufacturers suffered losses, who had to cut the production to liquidate the finished product inventory in light of high in-plant inventory as a result of poor sales in the previous period. Galvanised structural part manufacturers also experienced shrinking profits as the conversion margins failed to rise along with the rising zinc prices. Some middle and small-sized manufacturers that reply on OEM businesses were even more sluggish in producing. The manufacturers favoured brands with wider discounts, and would fix the discounts in advance before setting the transaction prices.

Die-casting: After the Chinese New Year (CNY) holiday, the die-casting orders were less than in the same period in 2021. And the resumption of production was 1-2 weeks later than in 2021. Though the operating rates picked up entering March, the terminal demand was depressed by high zinc prices. The inventory in Guangdong, a major producing area of zinc die-casting, was still high despite slight declines.

In the spot market, the discounts expanded amid rising zinc prices, but the transactions were still thin. Terminal companies said that their orders were mostly taken before the CNY, when the zinc ingot prices were set at around 25,000 yuan/mt. And now, as the prices have risen to around 26,600 yuan/mt, the costs were as high as 2,000 yuan/mt, hence these terminal companies tended to postpone the delivery of orders, and mostly stood wait and see. As such, die-casing manufacturers also mainly replied on existing stocks, and purchased only on rigid demand.

Zinc oxide: The zinc oxide manufacturers in Shandong, a major producing area, basically resumed the production by the end of February or in early March. The operating rates also rose in light of rising demand from tyre companies whose stocks have been depleted. Nonetheless, the raw material cost has been high due to high zinc slag prices as a result of booming zinc ingot prices, and most companies purchased on rigid demand or consumed existing stocks.

To sum up, most terminal players were wait and see owing to high zinc prices. And some manufacturers had to cut the production and liquidate finished product inventory amid operation losses. In addition, some manufacturers stopped to take orders after SHFE zinc touched limited up today. If zinc prices kept rising, the market players may have to further cut the production to control costs.
 

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