Bullish sentiment was strong last week. The inflation data, the increase in orders for durable goods, the PMI data and the strong employment data all showed the soft landing of the overseas economy and the recovery of China’s domestic manufacturing industry. Meanwhile, due to geopolitics issues, the credit status of the US dollar has been questioned, which has also boosted the prices of non-ferrous metals.
On the fundamentals, the benchmark TC for zinc concentrate in 2024 has been decided, and the imported zinc concentrate TC of $165/dmt is the lowest in three years, indicating that the shortage of ore has not improved. The weekly imported zinc concentrate TC was reduced to $50/mt, and the domestic zinc concentrate TC was 3,500 yuan/mt with metal content, the lowest in three years. The smelting cost has moved up further. Excluding the by-product income, domestic smelters are basically in a loss-making state.
According to the SMM survey, the output of domestic smelters in March was 525,500 mt, an increase of 23,000 mt from the previous month. The output of smelters is expected to decline to 504,300 mt in April. But with the recent gains in zinc prices, the output of the smelters that previously planned production cuts may grow, and the actual output may be higher than expected; despite the improvement of export orders and the "old for new" policy, the current orders have not exceeded expectations. Meanwhile, the real estate sector has performed weakly. And the upward trend of zinc prices has suppressed consumption to a certain extent. Spot premiums have been weak, and social inventories have accumulated. The zinc price lacks adequate support from fundamentals. The SHFE 2405 zinc contract prices are expected to move between 22,000-23,500 yuan/mt this week.
LME zinc is expected to trade between $2,600-3,000/mt.
Spot discounts are expected to stand at 150-80 yuan/mt against the SHFE 2405 zinc contract.
