SMM is Relatively Optimistic over Zinc Prices, Citing Ore Shortages, Demand Recovery and Potential Destocking

SHANGHAI, Jun 1 (SMM) -  SMM believes that the shortage of zinc ore will persist this year for several reasons. First of all, domestic mines did not put large amounts of capacity into production in this year. Secondly, the ore grade of some mines has declined. Thirdly, many mines were forced to stop production during the Winter Olympics. The Russian-Ukrainian war caused delays of zinc ore by 15-30 days on average. In addition, zinc ore importers suffered heavy losses this year. Zinc smelters were more cautious when signing long-term orders, and preferred to source spot zinc ore from ports instead. Zinc ore inventory at Lianyungang Port is relatively low at present. Given tight zinc ore supply, TCs are unlikely to rebound in the second half of the year. With the resumption of production of smelters, TCs may even go down.

Zinc inventory had been accumulating earlier this year, and did not show obvious destocking until over the past two weeks. Zinc consumption fell 10% YoY from January to May. Some traders who used to be engaged in zinc ingot export business shifted to export of aluminum ingots as the import window of the latter was open. Therefore, SMM believes that the current zinc inventory can better reflect the actual demand of the zinc market.

For the future performance of zinc demand, SMM is still looking forward to the recovery of demand in the post-pandemic period. According to the current domestic policy, the government is vigorously promoting the construction of infrastructure, real estate and other industries, and it is expected that there will be signs of marginal recovery in zinc consumption. However, considering the general lack of confidence in the domestic market, SMM takes a neutral view on future zinc demand.

In terms of zinc supply and demand balance, SMM expects that the demand in June will be better than that in 2021, and zinc inventory will decline in the next few months. Therefore, in general, SMM is not very pessimistic over zinc prices.