Low zinc prices stimulated downstream restocking

Recently, prices went down. On the one hand, risk appetite increased due to macro overseas political instability. On the other hand, the domestic Third Plenary Session policy expectations fell short, leading to overall weak macro sentiment. Fundamentals show a divergence between overseas and domestic markets. Disruptions on overseas supply are minimal, with LME inventory running at over 240,000 mt, and LME prices are relatively weak. Domestically, the tightness in the mining sector has not eased and is gradually affecting smelter production. Some smelters are struggling to resume production due to tight mining supply and loss of over 2,000 yuan/mt (excluding sulfuric acid and by-product revenue), keeping smelter output low. Although it is currently the off-season for consumption, low zinc prices stimulated downstream restocking, reducing social inventory to below 170,000 mt. Fundamentals still support zinc prices, but with SHFE zinc outperforming LME zinc, the import window for refined zinc has opened. Goods in bonded areas are the first to flow into the domestic market, partially offsetting the reduction in domestic supply. Social inventory destocking is expected to slow down. Additionally, overseas trade barriers increased, with Colombia announcing anti-dumping measures on Chinese galvanized sheets, imposing a 29.9% provisional anti-dumping duty. Although the total volume of domestic exports to Colombia in 2023 was less than 100,000 mt, it reflects increased difficulty in domestic exports, and future export volumes are unlikely to increase. The approximately 300 billion yuan ultra-long-term special government bonds are intended to support large-scale equipment upgrades and trade-in, but market sentiment remains limited, with implementation being closely watched. Overall, zinc prices are expected to remain weak until macro sentiment improves.

The model predicts that the average price range for SMM 0# zinc ingot from July 26 to Aug 1 will range bwteen 22,095 and 23,750 yuan/mt, with a price center of 22,870 yuan/mt. The extreme price range is 21,230 to 24,620 yuan/mt, the normal price range is 21,810 to 24,040 yuan/mt, and the conservative price range is 22,380 to 23,460 yuan/mt. Next week, prices are expected to move sideways or swing on a soft note. The support range is 21,810 to 22,380 yuan/mt, and the resistance range is 23,460 to 24,040 yuan/mt.