SHFE Zinc Prices Gain Support from Production Rationing in Yunnan

SHANGHAI, Mar 6 (SMM) - On the supply side, power cuts in Yunnan have led to a larger production reduction at local smelters. Last week, companies that cut their production were Yunnan Yuntong Zinc, Chihong Zinc & Germanium (Huize county, Qujing city) and Luoping Zinc and Electricity. Enterprises that are going to carry out maintenance in March are Mengzi Mining and Metallurgy, Huludao Zinc Industry and Gansu Baohui. In addition, there are rumours that recycling companies have significantly reduced their production. According to SMM's recent research, the recycling companies in Hunan generally maintain stable but low capacity utilisation rates amid the high electricity prices.

On the demand side, due to air pollution and other issues in north China, some factories slightly reduced production last week, but the galvanising enterprises maintained high operating rates. Downstream companies bore a certain inventory pressure, but they could still run at high operating rates thanks to the booming purchases from dealers. Downstream purchases decreased last week as zinc prices bounced back. The orders of die-casting and zinc oxide enterprises were average. Chinese zinc supply grew slower than expected, but the demand slightly surpassed expectations, which may beef up the prices in the short term. In overseas markets, with the production resumption of French smelters, the downstream companies in Europe were cautious in buying. And the spot premiums have dropped recently.

The market shall pay attention to the US non-farm data and whether the Two Sessions can guide the future Chinese policies this week. Zinc prices will move between 22,500-23,500 yuan/mt this week.