Guangdong Spot Premiums Fluctuate at Highs, How Will They Evolve in the Future? [SMM Analysis]

SMM, November 28: Spot premiums in Guangdong have fluctuated at highs since the contract rollover. How will the spot premiums in South China develop in the future? This article will analyze from three perspectives: inventory in South China, current zinc prices, and downstream consumption.

First, regarding inventory in South China, after the monthly delivery, Guangdong's inventory surged to over 30,000 mt. According to SMM, the delivery volume in Guangdong was close to 15,000 mt. The large outflow of warehouse warrants will cause spot premiums in Guangdong to decline continuously. Currently, the Guangdong market has seen significant warehouse receipt acceptance, and inventory has decreased noticeably. However, SMM has learned that some of the outflowing warehouse warrants have been shipped to north China. The South China market still has a relatively high number of circulating warehouse warrants, and there is no clear signal whether Guangdong's warehouse warrants will continue to be shipped to the northern market. Given the current market's ample supply and the downstream consumption not matching up, Guangdong's spot premiums are expected to decline slightly.

Second, regarding current zinc prices, as winter approaches, the off-season production for northern mines and winter stockpiling by smelters have caused a short-term tight supply in the domestic ore market. The tight inventory continues to support high zinc prices. Recently, funds have played a strong role in the futures market, and the price spread between futures contracts remains significant. Zinc prices are expected to hover at highs in the short term. The high zinc prices have led to relatively weak downstream procurement demand, with enterprises mainly purchasing on a need basis, limiting their ability to accept goods and hindering the rise in spot premiums.

Lastly, regarding downstream consumption, the downstream consumption of zinc in South China mainly involves die-casting zinc alloy. According to current feedback from die-casting zinc alloy enterprises, some downstream orders have been placed earlier due to the early Chinese New Year this year. Additionally, concerns about potential export tariff increases under Trump's administration have led to a rush in exports. However, overall downstream consumption remains mediocre. The real estate sector, which constitutes a significant portion of die-casting zinc alloy consumption, is currently in a slump and has not recovered. Winter is also an off-season for real estate construction. Overall, downstream consumption remains relatively flat.

In summary, the high zinc prices have weakened demand in the South China market. The continuous influence of bullish funds on the futures market has kept the price spread significant. If bullish funds continue to exert strong influence on the futures market, and the price spread continues to widen, the suppressive effect of zinc prices and downstream demand on South China spot premiums may be somewhat mitigated, leading to a potential upward fluctuation in South China spot premiums.