Do Not Overly Bearish on Zinc Prices [Institutional Commentary]

Last Friday in the domestic spot market, downstream transactions weakened, and premiums dropped back slightly. The Shanghai region reported premiums of 340-360 against May contracts. Domestic and overseas inventories once again destocked rapidly. As of Thursday, domestic social inventory destocked by 8,900 mt to 102,100 mt, maintaining a steep slope. From a fundamental perspective, on the supply side, the weekly processing fee for domestic zinc ore paused its rebound, and the sharp decline in zinc prices squeezed smelter profits, potentially leading to a subsequent production expectation gap. On the demand side, domestic demand remained resilient during the short-term peak season, with downstream weekly operating rates significantly increasing last week. The US-China tariff war has increased the probability of a US "recession" or even a global economic downturn. However, we remain relatively optimistic about domestic demand performance. With escalating overseas risks, domestic stimulus policies may continue to intensify, and physical demand in Q2 could be significantly reflected. Therefore, in the short term, we are not overly bearish on zinc prices. From a macro perspective, US-China tariff negotiations continue, and global de-dollarization is accelerating. The sell-off of US bonds still poses liquidity risks, and high commodity volatility may persist. Therefore, unilateral operations are still advised to be cautious, and more attention can be paid to SHFE zinc inter-month positive spread opportunities.