Increased Uncertainty on the Macro Front Leads to a Wait-and-see Stance

SHANGHAI, July 18 (SMM) - In terms of LMC zinc, the surge in electricity prices caused by limited energy supply was still the main support on the fundamentals. The electricity supply in overseas market remained tight, as is reflected in the electricity prices in various European regions that soared to varying degrees in July. In particular, the electricity prices in France, the Netherlands and Belgium, where Nystar’s smelters are located, stood at 350-400 euros/MWh. At the same time, due to labour shortages and the impact of the pandemic, the operating rates and production of overseas mines were short of previous expectation. According to SMM latest statistics, the output of overseas zinc concentrates in 2022 is expected to drop by 11,200 mt year-on-year, which meant that it would be impossible for smelters to increase the profits by elevating TCs. Assuming the zinc prices stand at $3,100/mt, the loss of overseas smelters (based on current electricity price) will be about $388-555/mt. SMM believes that European smelters will not resume the production soon, so the overseas supply will remain tight to support zinc prices. However, it should be pointed out that overseas consumption is weakening. Although the LME cash to 3-month contract backwardation increased rapidly in June, it did not last and failed to stimulate the sales. In fact, the LME inventory destocking had slowed down significantly. On the whole, the concern about rate hikes and an economic recession amid growing inflation still weighed on the overseas transactions. The LME zinc prices are expected to drop to $2,750-3,100/mt.