SHANGHAI, Jan 28 (SMM) - LME zinc extended the strong momentum during the Chinese New Year (CNY) holiday. As of Friday January 20, LME zinc closed at $3,448/mt, up $25.5/mt or 0.75% during the holiday. LME zinc ingot inventory stood at 17,675 mt on the same day, a drop of 975 mt during this period, with warehouses in Singapore contributing the major decline. First of all, the overseas market had strong expectations for demand recover after China relaxed the pandemic control measures. In addition, European smelters currently have no plans to resume the production, and falling LME inventory offered strong support to spot prices.
Looking forward, according to SMM research, the production reduction of Chinese smelters in February 2023 will be less significant than in the same period in the previous year based on the current production scheduling, hence refined zinc output will not fall palpably. Although the social inventory recorded a historical low of 67,000 mt before the CNY holiday, the considerable profit will significantly boost the production post the holiday. Hence the support from the fundamentals will be weak. Nonetheless, considering the market recovery following the scrap of zero-covid policy and the progress of real estate and photovoltaic-related projects which is likely to boost the consumption of galvanised products, the zinc ingot social inventory accumulation will slow. Coupled with the expected short squeeze overseas, SHFE zinc will gain momentum.