Eyes on Changes in Zinc Inventory for Zinc Price Prediction

SHANGHAI, Dec 5 (SMM) - In terms of LME zinc, the Federal Reserve conveyed positive messages last week as Powell hinted at a slowdown in rate hikes in his speech. Moreover, the US ADP employment data in November was lower than expected, and the US core PCE price index also fell slightly. Therefore, the market sentiment turned from bearish to extremely bullish. At the same time, the LME zinc cash-to-three-month contango recovered as LME zinc rebounded after the market sentiment picked up. In the long run, the underlying logic will not change much, that is, the production resumption in Europe is still worth attention. Especially after the annual spot premiums of overseas zinc ingot are finalised, chances are that some invisible stocks will be delivered to the warehouses. The speculation is based on the evaluation that there are accumulated finished product stocks in some overseas smelters. Generally, the upside room is limited for LME zinc, and it is expected to move between $2,950-3,150/mt this week.
In terms of SHFE zinc, the market last week had completely changed from a week earlier. After many provinces in China announced to relax the pandemic control policies, the market began to hype the economic recovery expectations. In this scenario, there is no doubt that zinc, among all the nonferrous metals, is most worth going long because zinc ingot inventory has been really low and still keeps falling. So, two questions need to be taken into consideration when it comes to predicting zinc prices. The first question is whether zinc smelters could ramp up the production in December. So far, there have some acknowledged changes to take place in the refined zinc output. First, Sichuan Hongda will increase its output to 5,400 mt. Second, Sichuan Sihuan will consume its zinc sheet inventory and ramp up the production after the technical transformation of its smelting and casting system is completed. Third, Western Ming and Yunnan Xiangyunfeilong will cut or suspend the production due to the pandemic, though the specific time is to be determined. The second question is whether the pandemic will spread rapidly, restricting the flow of people and economic activities after the control measures are loosened. If the answer is yes, then downstream companies are likely to reduce the production or even take holidays in advance. Of course, this speculation cannot be confirmed unless there is a continuous accumulation in inventory, On the whole, there is a great uncertainty in the future, but so far zinc prices still lack upward momentum. SHFE zinc prices are estimated to run at 23,500-25,000 yuan/mt.