At the 2024 SMM 19th Lead and Zinc Conference and Lead and Zinc Technology Innovation Forum -Lead and Zinc Market Forum hosted by SMM, Han Zhen, senior analyst of the lead and zinc industry of SMM, analyzed the current status of the zinc market in 2024 and made a forecast on its future prices. She said that SMM expects that domestic zinc concentrate supply will be relatively tight in 2024. As for refined zinc, considering the performance of downstream consumption, SMM expects that the domestic refined zinc supply may show a slight surplus in 2024, with a surplus of about 30,000 tons. In terms of price, SMM believes that considering the boost from macro sentiment and favorable policies, SMM expects zinc prices to rise in 2024.

Due to the decline in ore grade and extreme weather, overseas mines production is expected to increase by about 40,000 tons in 2024

According to SMM data, the Asian zinc concentrate benchmark TC in 2024 is US$165/dry metric ton, a significant decline compared to the end of 2023, supporting expectations of a shortage of ore.

Looking at overseas mines, SMM believes that due to the decline in ore grade and extreme weather conditions, overseas mines’ output is expected to increase by about 40,000 tons in 2024, an increase of about 0.6% compared with 2023.

Prices of auxiliary materials fell in 2023, cost at domestic mines dropped to 13,000 yuan/ton in metal content

According to SMM data, cost of domestic mines in 2022 was 13,800 yuan/ton in metal content. In 2023, with the decline in auxiliary material prices, the cost of domestic mines dropped to 13,000 yuan/ton in metal content.

Recently, with the decline in TCs and zinc prices at around 22,000 yuan/ton, domestic mines’ profits rose and remained at around 5,000 yuan/ton.

Domestic zinc concentrates output increased 60,000 mt with metal content in 2023, and will rise further to 180,000 mt with metal content in 2024

In terms of zinc concentrate, according to SMM data, domestic zinc concentrate output increased by 60,000 ton in metal contents in 2023. It is expected that domestic zinc concentrate output will continue to climb in 2024, and is expected to increase by about 180,000 ton in metal content.

Overseas shipments were low

According to the Lianyungang zinc ore arrival data compiled by SMM, since the beginning of 2024, zinc ore arrival data has shifted slightly downward compared with previous years, which confirms the fact that the port inventory is at a low level. According to SMM research, Lianyungang's inventory has continued to decline since late February 2024, and has now fallen to near a four-year low.

Zinc concentrate imports to remain low in 2024

Since 2024, unexpected events have occurred frequently overseas. Whether it is the Australian floods affecting mine transportation or the production obstructions at some mines in South Africa, they have led to a significant decline in zinc concentrate imports in the first two months of 2024. In February, zinc concentrate imports fell by more than 28% year-on-year. In addition, the downward trend in the SHFE/LME price ratio is also affecting the import of zinc concentrate. Zinc concentrate imports are expected to remain low in 2024.

Imported zinc concentrate TCs fell sharply, reflecting expectations for tight supply

In terms of TCs, according to SMM quotations, both domestic and imported ore TCs shifted downward compared with previous years, and the TCs of imported ore have dropped significantly, reflecting the expectation of tight supply of zinc ore.

As of March 2024, domestic smelters' raw material inventories dropped to around 20 days.

TCs fall and smelters profits fall

According to SMM data, since the fourth quarter of 2023, domestic zinc concentrate TCs have continued to decline, continuously squeezing the profits of smelters. At present, the smelters incur losses; the smelters are around the break-even point for zinc concentrate imports on a daily basis.

In 2024, the shortage of ore will suppress the expansion of smelter capacity

SMM predicts that the annual refined zinc output in 2024 may reach about 6.65 million tons. The shortage at the mine end may suppress the expansion of smelters’ production capacity. Due to the continued tight supply of raw materials, according to SMM's survey, the monthly operating rate of refined zinc also remains weak.

The proportion of alloy output at smelters increased year by year

It is worth mentioning that in 2024, the output of die-cast zinc alloys at smelters remained at a high level, the output of hot-dip galvanized alloys increased significantly year-on-year, and the proportion of alloys in the smelter increased year by year.

Import window closed in the second quarter, focus on imports under long-term contracts

According to SMM data, domestic supply decreased in the first quarter, providing an opportunity for imported zinc to flow in. Domestic zinc imports in the first quarter performed better than the same period in 2022 and 2023. In the second quarter, the import window closed, and we need to pay attention to the situation of long-term import orders in the future. SMM expects long-term import orders to remain at the current level in 2024.

Overseas smelters' power supply problems are alleviated and production may increase by 100,000 tons in 2024

Compared with the period in 2022 when electricity prices in Europe soared due to the Russia-Ukraine conflict, the average electricity price in Europe has begun to fall since 2023, the power problems of overseas smelters have also been alleviated, and the profits of European smelters have returned to high levels. According to SMM research and estimates, some smelters may see output growth in 2024, and the overall overseas smelters may achieve a output growth of 100,000 tons in 2024.

Secondary zinc will become the main driver of new production capacity of domestic smelters in 2024

As the profit margins of secondary zinc recover from low levels, SMM expects secondary zinc to become the key driver in new production capacity of domestic smelters in 2024.

End consumption

With regard to the real estate industry, the overall data performance is poor; in terms of domestic power grid investment, data shows that power grid investment has maintained a positive growth trend year-on-year, but the new capacity installation of photovoltaic power generation has been completed. And the year-on-year decline in new installed capacity of centralized photovoltaic power generation has dragged down the growth rate of photovoltaic zinc consumption; it still takes time to verify when infrastructure will contribute to consumption.

In the automobile consumption sector, new energy vehicles are gradually replacing traditional fuel vehicles. Considering the reduction in zinc consumption by new energy vehicles, SMM expects that the automobile sector will have limited impact on zinc consumption. In comparison, the home appliance market in 2024 is more promising. Washing machines, refrigerators and air conditioners - have shown significant year-on-year growth, and the growth rate of the export data of the three major products has also exceeded expectations. Under the old-for-new policy and strong export performance, SMM expects that home appliances will drive zinc consumption in 2024 to show a positive growth trend.

From the perspective of terminal consumption in the downstream zinc consumption sector, the development of projects such as towers and offshore wind power in 2024 will help galvanized structural parts companies start construction. However, due to factors such as poor performance of real estate data, the overall operating rate of the galvanized sector in 2024 will be lower than the same period in previous years.

According to the SMM survey, after returning from the Chinese New Year holiday in February, the concentrated replenishment of inventory in the downstream led to a significant increase in the operating rates of galvanized sheets in March. The monthly finished product inventory of galvanized sheets also dropped significantly.

In terms of galvanized sheet exports, data show that in 2023, driven by overseas infrastructure in Turkey, the export of galvanized sheets maintained a growth rate of more than 20%. In 2024, the exchange rate remained high, and the export orders of galvanized sheets continued to be high in the first two months. Coupled with the impact of the US election, SMM still has good expectations for the export of galvanized sheets in 2024, and it is expected that the export of galvanized sheets in 2024 will grow by about 10~15%.

In terms of die-cast zinc alloys, SMM still expects the export orders of the die-casting sector to improve in 2024, which may boost the subsequent operating rates of die-cast zinc alloys.

Regarding the substitution of die-cast zinc alloys, according to SMM research, as the copper-zinc price gap widens and the zinc-aluminum price gap narrows, the amount of copper and aluminum replacing zinc is expected to decrease this year. However, the price gap between zinc and stainless steel gradually moves up. It is expected that the downstream hardware, sanitary ware, locks and other sectors of die-cast zinc alloys may be partially replaced by stainless steel alloys.

In the zinc oxide sector, poor downstream ceramic and feed-grade orders have dragged down zinc oxide production, but the production rate of automotive semi-steel tires has remained high, which has supported the market demand for the zinc oxide industry.

LME zinc inventory is at a three-year high and we expect a turning point in domestic inventory

Overall, domestic downstream consumption performance in 2024 was not outstanding, dragging down the continued accumulation of domestic and overseas inventories. LME zinc inventories are already near their highs in the past three years, and domestic inventories have also risen significantly overall.

Normally, April is generally in the inventory digestion stage after the Chinese New Year holiday, but in April 2024, zinc ingot inventories continued to accumulate and were near the historical high for the same period, maintaining at around 200,000 tons, which also indirectly confirmed the fact that consumption performance was poor; under the continuous bombardment of multiple favorable policies such as the government’s trillion-dollar investment, consumer confidence still needs time to be transmitted, and we will pay attention to the recovery of the consumer confidence index in the future.

Imported zinc ingots supplement the domestic supply reduction and poor consumption performance, domestic spot premium is weak

With the import of zinc ingots to supplement the reduction in domestic supply, coupled with the poor performance of domestic downstream consumption, the spot premiums in the three domestic markets have been weak to rise. The inflection point of inventory may drive the spot premium to improve.

Supply pressure will increase in 2024

Regarding the domestic supply and demand balance, SMM predicts that domestic zinc concentrate supply will be tight in 2024. As for refined zinc, considering the performance of downstream consumption, SMM predicts that the domestic refined zinc supply in 2024 may be in a small surplus, with a surplus of about 30,000 tons; overseas, SMM expects that overseas zinc mines may recover in 2024, and smelters’ capacity will also increase compared with SMM's previous expectations. Therefore, on the whole, SMM expects that overseas zinc concentrate may still be in short supply; as for refined zinc, considering the recent good performance of overseas economic data and optimistic expectations for consumption, SMM expects that overseas refined zinc may be in a tight balance in 2024. In terms of price, SMM believes that considering the boost from macro sentiment and favorable policies, SMM expects zinc prices to rise in 2024.