A New Round of Tariffs Sparks Market Concerns, LME Zinc Center Shifts Downward [SMM Morning Meeting Summary]

SMM Zinc Morning Meeting Notes on March 5
Futures Market: Overnight, LME zinc opened at $2,836/mt. At the beginning of the session, LME zinc fluctuated along the daily moving average. During the European trading hours, bears entered the market, causing LME zinc to drop rapidly to a low of $2,807/mt. Later, as bears took profits and exited, LME zinc rebounded during the night session, reaching a high of $2,845.5/mt. However, the 5-day moving average acted as resistance, and the center of LME zinc gradually pulled back to around $2,816/mt, where it consolidated. It eventually closed down at $2,836/mt, a decrease of $18.5/mt or 0.65%. Trading volume decreased to 9,682 lots, while open interest increased by 2,666 lots to 226,000 lots. Overnight, the most-traded SHFE zinc 2504 contract opened at 23,730 yuan/mt. At the beginning of the session, SHFE zinc briefly rose to a high of 23,795 yuan/mt. Subsequently, as bears increased their positions, SHFE zinc fell below the daily moving average and hit a low of 23,570 yuan/mt near the end of the session. It eventually closed down at 23,615 yuan/mt, a decrease of 65 yuan/mt or 0.27%. Trading volume decreased to 50,968 lots, while open interest decreased by 1,027 lots to 85,200 lots.
Macro: Trump stated that Canada’s retaliatory tariffs on the US would immediately trigger the US to "impose equivalent reciprocal tariffs." The US Department of Commerce indicated that Trump might compromise on tariffs with Canada and Mexico. Zelensky expressed Ukraine's willingness to start peace talks under US leadership, with a mining agreement ready to be signed at any time. Russian President Putin agreed to act as a mediator in nuclear negotiations between the US and Iran. The interest rate futures market fully priced in three interest rate cuts by the US Fed in 2025. Germany's CDU leader Merz announced the establishment of a 500 billion euro special defense fund. The Ministry of Commerce launched an anti-circumvention investigation into certain US optical fiber products. China imposed an additional 15% tariff on US chicken and cotton and a 10% tariff on sorghum, soybeans, pork, and beef.
Spot Market
Shanghai: In the early session, the market quoted spot premiums of 0-10 yuan/mt against the average price, with few quotes against futures. During the second trading session, ordinary domestic brands were quoted at discounts of 10 yuan/mt to on par with the SHFE 2504 contract. Huize was quoted at premiums of 100-120 yuan/mt against the SHFE 2504 contract, Baiyin at a premium of 20 yuan/mt against the SHFE 2503 contract, and high-end brand Shuangyan at premiums of 100-120 yuan/mt against the SHFE 2504 contract. The futures market continued to fluctuate, and some traders raised their offers, but overall spot transactions were average. Downstream enterprises maintained just-in-time procurement, and Shanghai spot premiums showed no significant improvement. Attention should be paid to the subsequent performance of downstream consumption.
Guangdong: Spot prices were on par with Shanghai, and the Shanghai-Guangdong price spread narrowed. In the first session, suppliers quoted Qilin, Mengzi, Feilong, and Lantian zinc at discounts of 10 yuan/mt to premiums of 10 yuan/mt. In the second session, Qilin, Mengzi, and Lantian zinc were quoted at discounts of 20 yuan/mt to premiums of 10 yuan/mt against the online price. Overall, although the futures market declined yesterday, the price difference compared to the previous day was relatively small. However, downstream inventories from earlier low-price purchases were still sufficient, and end-use consumption showed no significant improvement. Some enterprises experienced inventory buildup, leading to weaker procurement demand and poorer market transactions. If zinc prices continue to rise without improvement in downstream demand, premiums and discounts are expected to weaken.
Tianjin: Tianjin spot premiums were around 10 yuan/mt higher than Shanghai. Yesterday, Tianjin switched to new-month quotations. By midday, Xinzi was quoted at premiums of 50-80 yuan/mt against the SHFE 2504 contract, Xikeng at discounts of 0-30 yuan/mt, Bailin at premiums of 40-50 yuan/mt, and high-end brand Zijin at premiums of 60-100 yuan/mt. The futures market mainly fluctuated yesterday. Some downstream enterprises were affected by environmental protection-driven production restrictions due to the Two Sessions. Coupled with futures prices not reaching downstream psychological price levels, just-in-time restocking prevailed. As shipments were strong last week, spot inventories were relatively low. Some traders showed a firm stance on quotes, leading to dispersed quotations and weaker overall market transactions.
Ningbo: Spot premiums were 10 yuan/mt higher than Shanghai, with mainstream quotations in Ningbo against the SHFE 2503 contract. In the first session, Yongchang was quoted at premiums of 0-10 yuan/mt against the SHFE 2504 contract, Qilin at on par with the SHFE 2504 contract, Honglu-V at a premium of 30 yuan/mt against the SHFE 2503 contract, and Baiyin at a premium of 20 yuan/mt against the SHFE 2503 contract. In the second session, traders' quotations remained unchanged from the first session. Zinc ingots under long-term contracts were gradually delivered to the Ningbo market, and traders focused on selling. Downstream enterprises made just-in-time procurement based on orders. Overall, transactions showed no significant improvement, and spot premiums in the market remained stable.
Social Inventory: On March 4, LME zinc inventory decreased by 1,650 mt to 161,950 mt, a decline of 1.01%. According to SMM, as of Monday (March 3), total zinc ingot inventory across seven regions tracked by SMM stood at 136,500 mt, down by 9,100 mt from February 24 and by 8,800 mt from February 27, indicating a decline in domestic inventory.
Zinc Price Forecast: Overnight, LME zinc recorded a long bearish candlestick. Slower growth in US economic data and Canada's retaliatory tariffs on the US, which would immediately trigger equivalent reciprocal tariffs, raised concerns about trade conflicts, suppressing the performance of base metals. The center of LME zinc shifted downward and is expected to continue fluctuating. Overnight, SHFE zinc recorded a bearish candlestick, with support from the 5-day moving average below and resistance from the 10-day and 20-day moving averages above. Macro sentiment was bearish, with new tariffs raising concerns about trade conflicts. From a fundamental perspective, there were no significant imbalances in supply and demand. Zinc prices are expected to mainly fluctuate and consolidate.