Zinc futures prices to rise

LME zinc inventories increased by over 50,000 mt to 142,775 mt this week amid large quantities of deliveries to LME warehouses. Meanwhile, the contango of LME cash to the three-month zinc contract pointed to sluggish oversea demand. There may be additional deliveries to LME warehouses in the near term.

In China, the supply is relatively stable. Actual operating rates in downstream sectors did not improve significantly even as aggressive dip buying lowered social inventories. Enterprises stood on the sidelines. The apparent consumption of hot-rolled coil as well as demand for cement and asphalt increased, though. Any downside room for zinc prices should be limited in view of noticeable improvement in spot trades, a wider price spread between the SHFE front-month and SHFE next-month zinc contracts as well as the plunge in social inventories.

SHFE zinc contract prices are expected to move between 19,700-20,800 yuan/mt this week, and LME zinc will trade between $2,250-2,400/mt. Spot premiums in Shanghai will stand at 50-150 yuan/mt.