Overseas Fundamentals of Zinc Weakened Marginally, while Domestic Zinc Output is Expected to Increase

SHANGHAI, Nov 21 (SMM) - Market focuses this week include the initial manufacturing PMI in the eurozone in November, the initial Markit manufacturing PMI in the US in November and the annualised number of new home sales in the US in October. There will be no economic data to be released in China. Apart from that, the US Federal Reserve FOMC will release the minutes of the November monetary policy meeting this Thursday, and the European Central Bank will also release the minutes of its monetary policy meeting.

In terms of LME zinc, there were new changes on the macro front. The US CPI unexpectedly fell, and the dovish remarks delivered by some Fed officials suggested a slowdown in interest rate hikes. Therefore, economies overseas all rebounded. However, it should be noted that the developing countries around the globe are only given a chance to catch their breaths. The possibility of economic collapse following the long-term ups and downs of US interest rates is still foreseeable. Generally, the fundamentals overseas have been weakening. First of all, the smelters in European are planning to resume the production. For example, the Budel smelter of Nyrstar plans to resume the production partially in November, and Glencore also decides to restore the production in the first quarter of 2023. This means that smelters overseas will step up the efforts to increase the production. Should the economy slip into recession, the overseas supply surplus will reach 250,000-300,000 mt in 2023. Second, in the wake of the sharp drop in LME zinc cancelled warrants, the LME cash-to-three-month backwardation last week fell to the negative territory, which may point to a further decline in the overseas consumption. On the whole, overseas market lacks upward momentum, and LME zinc is expected to fluctuate downward and move between $2,800-3,100/mt.

In terms of SHFE zinc, the stalemate between reality and expectation extended, with major concerns still over the production and inventory. The environmental protection-related investigation into the water polluted by thallium in Sichuan has ended, and local smelters will gradually resume the production. However, the smelters in Qinghai were forced to be closed amid the pandemic, and the production will not resume until the end of the month. Therefore, the SMM refined zinc output estimate in November is revised and cut by 18,200 mt to 519,100 mt. At the same time, the social inventory still stands at a historically low level. However, the surplus of zinc ore intensifies, and the TCs for zinc concentrates keep rising with an estimated value of over 5,500 yuan/mt in metal content in December. Given that the profits of smelters are quite considerable, SMM anticipates that the refined zinc output in December will return to above 540,000 mt. In addition, more smelters will resume normal production in 2023 and new production capacity will be put into operation. In this case, SMM estimates that domestic refined zinc output in 2023 will amount to 6.4 million mt, resulting in a severe oversupply. On the whole, investors are suggested to go short before the price peaks or after the output increase materialises. It is estimated that SHFE zinc will run at 23,000-24,200 yuan/mt.