Zinc oxide raw material shortage: recent terminal consumption market performance [SMM Analysis]

Affected by raw material shortage, zinc oxide production costs increased continuously. How do the orders perform? According to the SMM survey, the largest segment, rubber-grade zinc oxide orders, showed a slight decline. Ceramic-grade zinc oxide orders continued last year's trend, feed-grade zinc oxide orders showed signs of recovery, while electronic-grade and battery-grade zinc oxide orders steadily increased. Other chemical-grade zinc oxide orders held relatively stable.

Rubber grade

The largest consumption market for rubber-grade zinc oxide is the tire industry. Recently, the production of both all-steel and semi-steel tires has slightly declined. For all-steel tires, weakened transportation primarily caused reduced demand. The inventory of all-steel tires was relatively high, and related companies mainly consumed finished product inventories, resulting in decreased demand for raw material production. For semi-steel tires, cool automotive market led to a slight decline in the operating rate of semi-steel tires, thereby orders for related zinc oxide decreased. In addition, intense competition in the rubber market continuously compressed profit margins. It is expected that future orders for rubber-grade zinc oxide may see a slight reduction, leading to a decrease in the operating rate of related companies.

Ceramic grade

The largest consumption market for ceramic-grade zinc oxide is the real estate market. At the beginning of this year, the real estate market continued the trend from last year, starting low and declining further. The operation of related companies was also delayed, and even at a relatively low rate after production resumption. However, by mid-May, the government has vigorously promoted the real estate market. Local governments have issued policies to stimulate the real estate sector, and banks have adjusted mortgage rates to fully promote the recovery of the real estate industry. The renovation of old residential areas has also started, which has brought some confidence to the related downstream sectors. In the next two months, orders for ceramic-grade zinc oxide may improve.

Feed grade

Feed-grade zinc oxide primarily refers to active zinc oxide, mainly sold for piglet feed. Since 2023Q1, the number of breeding sows on hand has decreased for five consecutive quarters. In 2024Q1, the number of slaughtered hogs nationwide was 194.55 million, a YoY decrease of 4.43 million, down 2.2%. Pork production was 15.83 million mt, a YoY decrease of 70,000 mt, down 0.4%. At the end of Q1, the nationwide hogs on hand were 408.5 million, a YoY decrease of 22.44 million, down 5.2%, and a QoQ decrease of 25.72 million, down 5.9%. Among them, the inventory of breeding sows was 39.92 million, a YoY decrease of 3.14 million, down 7.3%, and a QoQ decrease of 1.5 million, down 3.6%. Recently, as hog prices rebounded, hog farming has resumed and piglet farming in south China has gradually warmed up. After May, feed-grade zinc oxide orders have slightly increased compared to the beginning of the year. (Note: Data source NBS)

Electronic grade and battery grade

Due to technological advancements and the iteration of electronic products, demand for varistors, thermistors and batteries has increased steadily. Therefore, the market for electronic-grade and battery-grade zinc oxide has been continuously developing, with related orders showing stable growth and a favorable market environment.

Overall, there is still room for growth in the zinc oxide orders. However, the recent rise in zinc prices has caused a slight decrease in order volume, elevating finished product inventories held by enterprises. If zinc prices remain high for a long time and raw material shortages are difficult to ease, the operating rate of zinc oxide enterprises may see a significant reduction in the future. SMM will continue to pay attention.