Bullish Sentiment will Boost Zinc Prices

SHANGHAI, Nov 14 (SMM) - On the macro front, apart from the rate hike, it needs to be noted that the mid-term elections in the United States may reshuffle the US political landscape. The possible turbulent environment may hit the global economy.

In terms of LME zinc, the previous production reduction plans in overseas enterprises have been gradually implemented. The overseas natural gas prices once collapsed between late October and early November, and the root reason for it was the problem of storage. European countries have been purchasing a large amount of natural gas since this summer to cope with the upcoming winter, but with recent concentrated arrivals of natural gas, gas storage facilities at ports were close to full storage. The spot prices of natural gas plunged, but the supply and demand structure in the long run has not changed entirely. Therefore, the prices of forward natural gas only dropped slightly, but this cannot be the ground for possible production resumption in the future. It should be pointed out that recently the cancelled warrants in LME zinc inventory dropped sharply. It might be a sign that the transfer of zinc ingots to Europe was cancelled or it just implied that the consumption in Europe encountered a further decline. Then it is possible that there will be a balance between supply and demand amid weaker consumption. On the whole, the LME zinc is expected to continue falling and move between $2,900-3,100/mt. 

In terms of SHFE zinc, the underlying logic did not change much from before as the social inventory still remained extremely low. In reality, the low inventory was still the solidest ground for bullish sentiment as the spread between SHFE front-month and next-month contracts expanded and the spot premiums stood at high levels. At the same time, the market expectation for economic recovery prevailed as there were rumours about a looser COVID control in China. In the end, the zinc prices hovered at highs under the support of strong fundamentals. However, the increase on the supply side is still worth attention amid constantly rising TCs as well as relatively high zinc prices which enabled lucrative profits for zinc smelters. It is expected that zinc ingot output will add by 23,200 mt MoM in November and by 9,800 mt MoM in December. Once the inventory starts accumulating, the zinc ingots will slip into a surplus. On the whole, the conflict between reality and expectations is still great. The focus of attention still remains the change in inventory. In the short term, SHFE zinc prices are expected to run at 23,500-24,500 yuan/met amid bullish market sentiment.