SHFE Zinc in Bungee Jumping Recently, Where Shall It Be Heading?

SHANGHAI, Jun 28 (SMM) – SHFE zinc dived unexpectedly since June 22, and recorded the new low at 22,525, yuan/mt since October 2021. As of June 27, SHFE zinc narrowed its decline from nearly 8% on Friday June 24 to 3.4%, and closed the day at 23,690 yuan/mt.

In the spot market, SMM 0# zinc ingot dropped 960 yuan/mt on June 28 to 23,800 yuan/mt, down 1,180 yuan compared with that on June 22.

SMM believes that the current of steep fall is mainly the result of the macro changes. Recently, the Europe and the United States have been raising interest rates one after another, triggering market concerns about a global recession, followed by hawkish statements from the Federal Reserve, which has increased market pessimism. Against this bearish background, the metals market was under pressure as a whole.

Besides disturbances from the macro front, sluggish demand also dragged on zinc prices. According to SMM research, the die-casting, zinc alloy and zinc oxide sectors also posted falling weekly operating rates due to sluggish real estate and infrastructure.

Nonetheless, there have been frequent production cuts on the supply side last week. In details, flooding in Guangxi led to the suspension of production of a local smelter, which then gradually resumed the production after the power station was restored. A smelter in the west Hunan stopped the production for 10 days and reopened on Friday. Some smelters in Inner Mongolia will be overhauled from July to August to reduce the production, and some in Shaanxi are expected to start overhaul or reduce the production beyond expectation.

As such, SMM has revised the monthly output estimate in June and July down to 487,200 mt and 512,200 mt respectively. And the market shall watch if there be more production cuts or suspensions as some smelters have already suffered losses owing to constantly falling zinc prices last week.

In terms of inventory, SMM zinc ingot social inventory across seven markets in China totalled 197,400 mt as of June 27, down 10,900 mt from last Friday June 24, and down 20,700 mt from Monday June 20 mainly because of less arrivals and restocking on dips.

To sum up, the inventory is expected to fall further amid supply tightness, open export window and purchases on dips though the supply and demand sides are both weak. The bearishness on the macro front has weighed on zinc prices, and investors are advised to stay wait-and-see until the prices stabilise.