2024 Zinc Futures and Spot Prices Surge Over 18% as Supply-Demand Imbalance Intensifies; Will It Improve in 2025? [Annual Review]

SMM, January 7: Unlike the low-level fluctuating trend of zinc prices in 2023, zinc prices in 2024 fluctuated upward under the stimulus of strong macroeconomic factors and a supply-demand mismatch in zinc mines. As of the closing price on December 31, 2024, zinc prices reached 25,460 yuan/mt, marking an annual increase of 18.36%.

Spot prices also followed suit. According to SMM spot quotations, as of December 31, 2024, the average spot price of SMM 0# zinc ingot was 25,900 yuan/mt, up 4,280 yuan/mt from 21,620 yuan/mt at the end of 2023, an increase of 19.8%.

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Reviewing zinc price trends by phase:

Q1: Macro Pressure vs. Post-Holiday Strong Fundamentals, Zinc Prices Fluctuate

In January, statements from US Fed officials continued to dampen market expectations for interest rate cuts, leading to bearish market sentiment. However, overseas supply disruptions resurfaced, and domestic policies provided support, resulting in overall fluctuating zinc prices in January. In February, macro-wise, overseas interest rate cut expectations were repeatedly postponed, causing SHFE zinc futures to decline to an annual low of 20,125 yuan/mt. However, domestic zinc mine supply remained tight, processing fees for both domestic and imported ores continued to decline, and downstream consumption gradually recovered after the Chinese New Year break. As a result, zinc prices rebounded slightly in late February. In March, the suspension of a domestic lead-zinc mine and production cuts at Korea's YP smelter caused continuous market disruptions, driving zinc prices upward.

Q2: Macro and Fundamentals Resonance, Zinc Prices Surpass 25,000 Yuan/mt

In Q2, overseas economic data improved, and domestic policies such as "trade-in" programs, ultra-long-term government bonds, and relaxed real estate purchase restrictions were introduced, boosting market optimism. Fundamentals side, tight mine supply persisted, and multiple domestic smelters underwent maintenance and production cuts, providing additional support for zinc prices. The resonance of macro and fundamentals attracted bullish funds into the non-ferrous market, pushing zinc prices above 25,000 yuan/mt. However, the US non-farm payrolls data exceeded expectations, delaying interest rate cut expectations and weakening overall sentiment in the non-ferrous sector. Zinc prices fell and then rebounded in June, settling below 25,000 yuan/mt. Driven by multiple favorable factors earlier in the quarter, SHFE zinc prices rose 18.1% QoQ in Q2, contributing significantly to the annual increase.

Q3: Macro and Domestic Supply Tightness in a Tug-of-War, Zinc Prices Hover at Highs

Domestically, multiple smelters underwent concentrated maintenance and production cuts, and the import window for zinc ingots remained closed. In July, zinc ingot imports dropped to 18,000 mt, significantly reducing domestic zinc supply. However, the implementation of domestic policies such as special bonds and trillion-yuan investments had yet to yield tangible results, and high temperatures and heavy rains highlighted the off-season for downstream zinc consumption. Coupled with profit-taking by some investors and heightened concerns over global consumption, bullish funds exited the market, causing zinc prices to decline in July. Mid-quarter, overseas inflation data showed mild growth, easing recession concerns. Additionally, declining ore grades in northern China exacerbated domestic zinc mine tightness, and falling processing fees increased the likelihood of further smelter production cuts, supporting zinc prices to rebound above 24,000 yuan/mt. In September, the US Fed signaled a 50-basis-point interest rate cut, improving macro sentiment and driving zinc prices upward again.

Q4: Bullish Sentiment and Tight Mine Supply Propel Zinc Prices to Annual Highs

At the end of September, frequent macroeconomic stimuli in China pushed zinc prices to high levels. After the National Day holiday in October, downstream consumption improved compared to September. Macro-wise, the market increased bets on moderate US Fed interest rate cuts, and the State Council emphasized the implementation of incremental policies, leading to fluctuating zinc prices in October. In November, better-than-expected October Caixin PMI data for China's manufacturing and services sectors drove zinc prices higher. However, the strong US dollar after the US election weighed on zinc prices. Subsequently, winter stockpiling, tight mine supply, and lower-than-expected zinc concentrate imports in October, combined with moderate downstream consumption, attracted bullish funds, pushing SHFE zinc to an annual high of 26,315 yuan/mt. As funds exited and zinc prices remained high, downstream consumption weakened, causing SHFE zinc to pull back slightly.

In December, zinc prices continued to hover at highs. Domestic supply-demand imbalances and tight spot supply supported zinc prices, but the US Fed's slower pace of interest rate cuts for the coming year strengthened the US dollar to 120 points, putting pressure on zinc prices. Later, favorable outcomes from the National Financial Work Conference boosted zinc prices again. However, as the positive sentiment faded and imported zinc ingots continued to flow into the domestic market, easing spot tightness, SHFE zinc prices pulled back slightly at year-end. Overall, zinc prices rose 1.52% QoQ in Q4.

A review of zinc price trends throughout 2024 shows that multiple macroeconomic factors and tight supply on the zinc side were the main drivers of zinc price increases over the past year.

Zinc Processing Fees Hit Record Lows in 2024, Expected to Rebound in 2025!

From the zinc mine perspective, in 2024, extreme weather and declining ore grades exacerbated supply-demand imbalances. Against this backdrop, domestic zinc concentrate TCs repeatedly hit record lows. As of August 2, 2024, domestic zinc concentrate weekly TCs fell to 1,450 yuan/mt (metal content), a historical low. Imported zinc concentrate TCs dropped to -$40/dmt on August 16, 2024, also a record low.

According to an SMM survey, the continuous decline in zinc concentrate TCs was due to the low SHFE/LME price ratio since the beginning of the year, which kept the zinc concentrate import window closed. Import losses expanded in Q2, and with imported ore prices lacking an advantage, smelters showed low purchase willingness for imported ore.

SMM reported that multiple mines in Peru, Australia, and the US announced suspensions in Q3 and Q4 of 2023, with no recovery in 2024. Additionally, new overseas zinc mine production was concentrated in H2 2024, with H1 zinc mine production down slightly YoY. Meanwhile, overseas smelters like Nordenham gradually resumed production in H1 2024, reducing zinc mine inflows into China. Domestically, declining ore grades in northern mines and reduced domestic ore production further tightened supply. Rapid capacity expansion at domestic smelters, including the continuous release of 300,000 mt of new capacity in south China in 2023, drove robust raw material demand. The supply-demand imbalance intensified the decline in processing fees for both domestic and imported ores.

In H2, as the SHFE/LME price ratio rebounded significantly, the zinc concentrate import window reopened, increasing imported ore inflows into China. However, the market remained tight, and imported TCs continued to decline. In July 2024, a lead-zinc mine in Xinjiang commenced production, but its output had yet to reach the market, and Q3 mine supply showed no significant increase. Additionally, due to profit and raw material shortages, SMM reported that refined zinc production in July fell 56,200 mt MoM to 489,600 mt, with smelter production remaining low in Q3. Domestic zinc mine supply-demand balance gradually improved, and by September, the decline in processing fees for both domestic and imported ores had largely stopped.

In October, SMM reported rising inventories at seven major ports, with a slight increase in domestic imported ore circulation, supplementing zinc concentrate supply. Additionally, high zinc prices in October boosted mine profits, and as raw material inventories at some domestic smelters improved, market sentiment turned bullish. Some smelters negotiated higher domestic processing fees with mines, leading to a slight rebound in processing fees in October. Later, as smelters maintained low operating rates and raw material inventory days continued to recover, domestic zinc concentrate TCs rose slightly MoM in December, reversing the previous downward trend. As of December 27, 2024, the average domestic zinc concentrate TC recovered to 1,850 yuan/mt (metal content), while imported zinc concentrate TCs recovered to -$20/dmt.

By year-end 2024, despite the seasonal winter suspension of some northern mines and a significant reduction in domestic ore supply, China's zinc concentrate imports had increased significantly since H2 2024 and remained high in Q4, continuously supplementing domestic supply. On the demand side, SMM reported that domestic smelter raw material inventories rose to around 27 days in December 2024, reaching historical levels and significantly easing raw material pressure. As smelters' raw material pressure eased and zinc prices remained high in Q4, smelters negotiated higher zinc concentrate TCs with mines. As a result, domestic zinc concentrate TCs rose significantly in January. Meanwhile, smelters showed low purchase willingness for imported zinc concentrate TCs, which also rebounded significantly. As of January 3, 2025, domestic zinc concentrate TCs rose to 1,800–2,100 yuan/mt, with an average of 1,950 yuan/mt. Imported zinc concentrate TCs ranged from -$30 to -$10/dmt, with an average of -$20/dmt.

Looking ahead to the 2025 zinc mine market, SMM predicts that domestically, a lead-zinc mine in Xinjiang will continue infrastructure construction and production, with capacity gradually being released. Other mines remain in trial production, and some production releases are uncertain. SMM will continue to monitor developments. Overseas, Russia's Oz mine commenced production in September 2024, Kipushi produced its first batch of zinc concentrate in June 2024, Mexico's Buenavista Zinc continued ramping up production, and Tara lead-zinc mine announced resumption in Q4 2024. Additionally, Antamina's production may recover in 2025. Optimistically, global zinc mine production may increase by over 500,000 mt (metal content) in 2025. However, it will take time for overseas mine production to flow into China. SMM expects domestic mine tightness to ease significantly by Q2 2025 at the earliest, with processing fees continuing to rebound and recover throughout 2025.

Tight Mine Supply & Narrowing Profits, Zinc Concentrate Production Down YoY in 2024

With domestic mine tightness persisting for most of the year, the continuous decline in processing fees led to narrowing smelter profits. Combined with seasonal maintenance in northern regions, smelter production fell significantly in Q3, dropping below 490,000 mt. The market even speculated about "joint production cuts." Overall, domestic refined zinc production in 2024 is expected to decline nearly 7% YoY.

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Looking ahead to January 2025, SMM expects domestic refined zinc production to increase by over 15,000 mt MoM or nearly 3% MoM. Overall, smelter production is expected to continue increasing in January, driven by production increases in regions such as Hunan, Guangdong, Gansu, Inner Mongolia, Sichuan, and Jiangxi, despite maintenance and production cuts in Hunan, Guangxi, and Sichuan. However, with the Chinese New Year break and reduced production days, February production may decline.

For the full year, while mine production is expected to increase in 2025, seasonal factors, resumption progress, and extreme conditions may hinder a quick resolution of tight supply. Smelters may maintain low production in Q1, with production gradually increasing later. Regarding new capacity, new and resumed smelter capacity for mined zinc is expected to materialize by late Q1 or early Q2, with an estimated increase of 260,000 mt in 2025.