Q1 Guangdong Spot Premiums/Discounts Declined—What Lies Ahead? [SMM Analysis]

SMM March 14 News: Why did Guangdong spot premiums and discounts fall back from highs in Q1? From the data, Guangdong spot premiums reached 620 yuan/mt around January 10, marking a two-year high. The reasons mainly include two aspects: first, the low social inventory; second, the high stocking demand from downstream before the Chinese New Year, which drove the overall market premiums higher. Subsequently, market premiums plunged as downstream enterprises gradually went on holiday and continued to fluctuate rangebound at low levels. So, how will Guangdong premiums change in the future? This article will analyze from three aspects: social inventory, downstream consumption, and zinc prices. First, regarding social inventory, the current social inventory in Guangdong is at a four-year low. As of March 13, Guangdong zinc ingot inventory totaled 18,600 mt, significantly lower than the historical range of 20,000-50,000 mt for the same period. This low inventory level has led some traders to stand firm on quotes, making a sharp drop in premiums unlikely. Additionally, the high contract prices of some brands this year, combined with cost and inventory pressure, provide support for spot premiums. However, according to SMM data, domestic zinc ingot production in February reached 481,000 mt, exceeding the previous forecast of 477,100 mt. Meanwhile, domestic refined zinc production in March is expected to increase further to approximately 545,800 mt. The anticipated increase in market supply may pose resistance to the rise in spot premiums. Meanwhile, from the perspective of downstream consumption, the overall performance of die-casting zinc alloy after the holiday has been relatively good, mainly due to the decline in zinc prices before the holiday and the increase in enterprise orders, especially evident in large enterprises. Small and medium-sized enterprises are still in recovery. Recently, the seasonal characteristics of March have not been obvious. According to enterprise feedback, downstream consumption remains relatively mediocre despite entering March. Some enterprises, due to high inventory levels, have chosen to halt production for rest and inventory digestion. Regarding specific orders, hardware orders supporting the real estate sector have been generally average; auto parts orders have been steadily improving. According to CAAM data, China's automobile production in February was 2.103 million units, down 14.10% MoM but up 39.6% YoY; auto sales were 2.129 million units, down 12.2% MoM but up 34.4% YoY. Orders for small hardware such as zippers for bags and clothing, as well as electronic product orders, performed relatively well. In terms of export orders, those destined for Europe and the US were generally weak, while orders to Southeast Asia remained relatively stable. Finally, regarding zinc price trends, post-holiday zinc prices have been relatively stable, fluctuating around 23,600 yuan/mt. Recently, due to the decline in the US dollar index and news of production cuts planned at Australia's Hobart zinc smelter in April, zinc prices have risen slightly. However, some downstream customers currently hold a wait-and-see attitude toward the short-term trend of zinc prices. With mediocre consumption demand, they tend to restock only when prices pull back, resulting in weak stockpiling willingness. The anticipated increase in spot supply also provides weak support for strong price performance, similarly weakening support for future spot premiums. In summary, the future trend of market premiums and discounts mainly depends on whether downstream industries can enter the peak season and the subsequent development of social inventory. Although current consumption is generally mediocre, enterprises still hold certain expectations for future consumption. If subsequent market demand can absorb the increase in spot supply, Guangdong premiums may rise slightly. (The above information is based on market collection and comprehensive evaluation by the SMM research team. The information provided in this article is for reference only and does not constitute direct investment research advice. Clients should make cautious decisions and not replace independent judgment with this information. Any decisions made by clients are unrelated to SMM.) 》Click to view the SMM Metal Industry Chain Database