Zinc prices may still rise further in the absence of significant macro disturbances

Zinc prices fluctuated at highs last week and surged significantly towards the weekend. LME zinc showed a stronger trend, hitting the highest level since February this year, while SHFE zinc followed suit. Fundamentals side, supply disruptions from Australia's Century mine led to reduced supply. From a capital concentration perspective, the LME 0-3 structure shifted from contango to backwardation, with backwardation rising to $58.25/mt. Long positions in near-month contract increased, and bullish sentiment was high, raising the risk of a short squeeze. However, LME inventory remained near 240,000 mt, the highest in nearly three years. With weak overseas consumption, higher zinc prices increased the willingness of holders to deliver, potentially leading to further inventory buildup. This could dampen bullish sentiment, so attention should be paid to the concentration of long positions and LME inventory changes. Domestically, Hebei Hua'ao mine halted production in mid-October with no set recovery date. Previously, the mine produced about 5,000 mt of zinc concentrate per month, exacerbating supply shortages. As smelters' raw material inventories gradually eased, expectations for increased production grew. However, with the weakening SHFE/LME price ratio, the inflow of imported zinc ingots is expected to decrease, keeping overall supply low. On the consumption side, the fourth quarter entered a seasonal off-season, and environmental protection-driven production restrictions in Hebei, Tianjin, and Shandong led to a significant decline in galvanising plant operating rates. With weak supply and demand, zinc prices lacked upward momentum. However, given the high concentration of overseas capital and increased short squeeze risk, zinc prices may still rise further in the absence of significant macro disturbances. Caution is advised regarding the risk of price collapse following a retreat of bullish funds.