SHANGHAI, Feb 6 (SMM) - The operating rates of downstream enterprises are worth attention this week. The ferrous metals prices in the Chinese market and the real estate sales data last week suggested that the recovery of the real estate industry has not yet begun. The operating rates of downstream enterprises that resumed their production rose steadily last week, which, together with the fall in zinc prices, encouraged the enterprises to restock zinc ingots. And market transactions gradually improved. On the supply side, according to SMM research, Nandan County Jilang Indium Industry and Xing'an Copper-Zinc Smelting Co., Ltd. carried out maintenance for half a month, which reduced the monthly capacity by 10,000 mt. In the import market, China mainly imported KZ in January, and the volume is expected to be around 2,500-3,000 mt. The supply of hydropower in Yunnan was tight last week, and there were rumours in the market that aluminium plants expanded the production reduction scale, while the market has not seen signs of production cut in zinc smelters yet.
Recently, the cold weather in Europe has pushed up the prices of natural gas and electricity, which further reduced the profits of smelters in Europe. And the probability of a production resumption in the short term is not high. Therefore, LME zinc ingot inventory may remain low, and the spread between LME cash to 3M contract will still be in the backwardation structure.
Mines and smelters get relatively high profit margins at present, and overseas zinc concentrates arrived at ports intensively last week, hence the short-term zinc concentrate supply in China will be abundant. Theoretically, the year-on-year growth of zinc ingot supply is high. However, the actual growth has remained lower than expected since 2022, arousing a wait-and-see sentiment in the market. On the demand side, in January 2023, the zinc market was twisted over the strong recovery of domestic demand and the soft landing of the US economy. In February, if the output is released smoothly in China while the demand grows slowly, the market needs to be wary of a potential drop in zinc prices. If the demand recovery exceeds expectations, zinc prices may rise after a short-term fluctuation. Attention should be paid to data such as the changes in premiums of zinc ingots and the weekly inventory. SHFE/LME zinc price ratio grew last week, and is expected to remain at the current level in the short term amid the strong fundamentals and the closed import window. Due to the high import volume in the first quarter of 2022, it is expected that the growth of apparent supply in the first quarter of 2023 will be relatively limited. If the demand recovers gradually as expected, it is expected that the traders who carry arbitrage can build base positions.
SHFE zinc prices are expected to move between 23,800-24,300 yuan/mt, and LME zinc will fluctuate between $3,250-3,270/mt.
