The "Golden March and Silver April" is coming to an end: Where will the consumption of zinc oxide go in Q2? [SMM Analysis]

SMM March 28 News:

As March is about to end, how has the consumption of zinc oxide in various downstream sectors performed in Q1? Has there been a peak season performance after the Chinese New Year?

From the perspective of operating rates, the average monthly operating rate of zinc oxide in January-February was higher than the same period last year due to the early Chinese New Year break. How will the orders for zinc oxide in various sectors develop in Q2? The following analysis will cover the rubber sector, ceramic sector, feed sector, and other sectors.

First, rubber-grade zinc oxide , as the largest consumption area of zinc oxide end-use, its end-use products are mostly rubber tires or industrial and daily rubber products. From the overall situation in Q1, orders for rubber-grade zinc oxide were relatively stable. Tyre factories, as a significant part of rubber end-use consumption, saw stable production and sales of automobiles in China in January-February, with production and sales up 16.2% and 13.1% YoY, respectively, supported by macro policies. Orders from large factories were stable, while orders from small factories continued to recover. However, zinc oxide companies face two major challenges in tyre orders. First, some tyre companies and dealers had poor shipments and significant inventory buildup in Q1, leading to cautious attitudes towards future orders due to weak demand. Second, due to the overall weak demand for tyres in the market, there is intense low-price competition , resulting in low efficiency and compressed profits from zinc oxide companies to downstream tyre factories and traders. Affected by these two factors, although some zinc oxide companies currently have normal production and sales, they believe the future development of overall orders may not be clear.

Second, from the perspective of ceramic-grade zinc oxide , ceramic orders in Q1 showed no significant highlights. Ceramics can be divided into coarse and fine ceramics, but both are end-use products of the real estate sector. According to data from the National Bureau of Statistics, the cumulative YoY sales area of commercial housing and the completed area of real estate in February both recorded negative growth, at -5.1% and -15.6%, respectively. The actual end-use order situation also corroborates this data. Companies reported that due to temperature effects, ceramic factories started operations late, which also delayed the recovery of orders. Looking at Q2, the main tone of real estate policy is "stability," and market consumption is expected to remain largely stable with little change in demand.

Furthermore , from the perspective of feed and zinc oxide , feed-grade zinc oxide performed well in Q1, showing remarkable performance compared to last year. This is mainly due to the absence of external factors such as swine fever this year, leading to good demand for feed orders. However, looking ahead to Q2, many companies are cautious about the development of future orders. First, the recent surge in port arrivals of soybean meal has led to a decline in soybean meal prices, and downstream companies "rush to buy amid continuous price rise and hold back amid price downturn," resulting in a reduction in feed procurement volume. Second, the narrowing price spread between pig farming prices and breeding costs has accelerated pig slaughtering, reducing feed demand. At the same time, Q2 will also need to pay attention to news about inventory levels.

As for electronic-grade zinc oxide and export orders , companies report that the demand for electronic-grade zinc oxide this year has weakened compared to last year, and they believe that uncertainties and risks are gradually increasing in both domestic demand and export orders. This year, the State Grid Corporation of China's investment increment reached 650 billion yuan, and potential demand still exists. The domestic demand for electronic-grade zinc oxide is expected to gradually release, but in terms of exports, the US and Europe, as the largest demand regions for tyres, may not be affected by China's tyre exports, and the impact of tariff policies on other end-use sector orders may also gradually become apparent.

Overall , the order situation for various sectors of zinc oxide in China in Q1 is in the process of recovery. In Q2, domestic consumption may gradually be driven by policy to release, but exports remain full of uncertainty, and downstream demand is expected to remain largely stable.

     (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. This article does not constitute direct advice for investment research decisions. Customers should make decisions cautiously and not use this as a substitute for independent judgment. Any decisions made by customers are not related to SMM.)

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