Zinc Fundamentals Remain Weak, LME Zinc Center Continues to Shift Downward [SMM Morning Meeting Summary]

Futures Market: Overnight, LME zinc opened at $2,808.5/mt. At the beginning of the session, LME zinc briefly rose to a high of $2,825.5/mt. Subsequently, as bulls reduced positions, LME zinc fell below the daily moving average and fluctuated downward, hitting a low of $2,756/mt during the night session. It then consolidated near $2,790/mt by the session's end, ultimately closing down at $2,790.5/mt, a decrease of $22/mt or 0.78%. Trading volume increased to 11,444 lots, while open interest decreased by 2,099 lots to 226,000 lots. Overnight, LME zinc recorded a bearish candlestick, with resistance from the 20-day moving average above and support from the 5-day moving average below. Overnight, the most-traded SHFE zinc 2503 contract opened at 23,170 yuan/mt. At the start of the session, shorts increased positions, causing SHFE zinc to fluctuate downward and hit a low of 23,010 yuan/mt. Later, bulls entered the market, lifting the center of SHFE zinc upward to consolidate near the daily moving average. It ultimately closed down at 23,175 yuan/mt, a decrease of 85 yuan/mt or 0.37%. Trading volume decreased to 57,467 lots, while open interest increased by 4,659 lots to 103,000 lots. Overnight, SHFE zinc recorded a small bullish candlestick, with resistance from the 5-day moving average above and the KDJ indicator showing a downward opening.
Macro: The White House stated that Trump did not commit to deploying ground forces to Gaza. The Bank of England sold gold at a discount due to relatively slow delivery. US media reported that the Pentagon is drafting plans for a full withdrawal from Syria. The US is reportedly set to announce a Ukraine peace plan next week, potentially proposing a freeze on the current frontlines. Spot gold hit a new all-time high above $2,880, while gold futures broke above $2,900. The US Postal Service announced it would continue accepting inbound parcels from mainland China and Hong Kong starting February 5. US Treasury Secretary Besent stated that Trump had not called on the US Fed to cut interest rates, while focusing on the 10-year Treasury yield. Trump mentioned he was not in a hurry to speak with Chinese leaders, and the Ministry of Foreign Affairs responded that what is needed now is dialogue based on equality and mutual respect. The 2025 Chinese New Year box office hit a record high of 10 billion yuan. China's January Caixin Services PMI stood at 51, down 1.2 percentage points from the previous month, marking the lowest level since October 2024 but still indicating expansion.
Spot Market:
Shanghai: Yesterday marked the first trading day after the holiday. In the Shanghai market, traders exhibited a strong wait-and-see sentiment, with suppliers offering limited quotes. Although the futures market saw a significant decline in the morning, downstream enterprises had not yet resumed operations in large numbers, leading to limited improvement in inquiry and purchasing demand. Overall, market transactions were sluggish.
Guangdong: Guangdong spot zinc was quoted at a discount of 50 yuan/mt against Shanghai. Overall, downstream enterprises in the region have yet to resume significant production, with most operations expected to start around the Lantern Festival. Procurement demand remained weak. In the early session, market concerns about inventory buildup in Guangdong led to higher premiums. However, as weak transactions persisted, premiums declined slightly. Yesterday, market transactions were sluggish, the price spread between futures contracts expanded slightly, and premiums edged higher.
Tianjin: Tianjin spot zinc was on par with Shanghai. Yesterday, Tianjin saw contract rollover quotes. The futures market experienced a significant decline, and downstream enterprises gradually resumed operations after the holiday. Overall demand remained weak, with traders mostly adopting a wait-and-see attitude and offering limited quotes. Downstream buyers made small-scale purchases based on pricing, resulting in average market transactions.
Ningbo: Ningbo spot zinc was quoted at a premium of 20 yuan/mt against Shanghai. Most downstream enterprises in Ningbo are expected to resume operations next week. Yesterday, there were almost no inquiries or purchases from buyers, and zinc ingot demand showed no improvement. As a result, traders in Ningbo continued to adopt a wait-and-see approach, with almost no quotes in the market. The sluggish trading atmosphere persisted, and attention remains on subsequent arrivals.
Social Inventory: On February 5, LME zinc inventory decreased by 2,275 mt to 174,150 mt, a decline of 1.59%. As of January 27, total zinc ingot inventory across seven regions monitored by SMM stood at 70,400 mt, an increase of 11,000 mt compared to January 20 and an increase of 780 mt compared to January 23, indicating a buildup in domestic inventory.
Zinc Price Outlook: Mixed US economic data and cautious remarks from US Fed officials led to a continued decline in the US dollar index. However, concerns remain in the market about weakened demand due to increased tariffs and trade issues. Zinc is still expected to transition from tightness to looseness on the mine side. Domestically, post-holiday resumption of operations in downstream and end-user sectors will take time, and consumption provides limited support for zinc prices. In the short term, zinc prices are expected to fluctuate downward.