After a Sudden Plunge, SHFE Zinc Stabilizes: What Breakthrough Will It Find Amid the Struggle? [Institutional Consultation]

After the collective decline of commodities on the first day post-holiday, the downward trend of SHFE zinc, which resumed at the end of March, has come to a halt. Recently, the futures price has been "struggling" below the 22,500-point mark.

Is the domestic zinc concentrate TC still on the rise? How is the profitability of smelters? Is the expectation for continued increase in domestic refined zinc production strong? This week, LME zinc inventory saw a significant surge, mainly contributed by Singapore warehouses. Does this exacerbate concerns about overseas demand? Recently, domestic zinc ingot social inventory rebounded but declined again within the week. How is the performance of domestic downstream demand? Webstock Inc.'s [Institutional Consultation] section invites SHFE zinc futures experts to provide a detailed analysis.

[Institutional Consultation]: Is the domestic zinc concentrate TC still on the rise? How is the profitability of smelters? Is the expectation for continued increase in domestic refined zinc production strong?

Shenghan Zhang, Lead and Zinc Analyst at Yide Futures Nonferrous Metals R&D Center: Domestic smelters have relatively ample raw material stockpiling, and zinc concentrate TCs have shown a significant upward trend, with profits shifting from the mining end to downstream smelters. As of April 18, domestic zinc concentrate TCs rose to 3,450 yuan/mt (metal content), while imported zinc concentrate TCs increased to $35/dmt. Since the beginning of 2025, domestic and overseas zinc concentrate TCs have risen by 1,500 yuan/mt (metal content) and $55/dmt, respectively. Including the revenue from by-products such as sulphuric acid and minor metals like lead, copper, and silver, most smelters have started to turn a profit, thereby strengthening their production willingness. A zinc smelter in south-west China, originally scheduled for maintenance in April, has postponed it to late May. The pressure for refined zinc supply resumption in Q2 may further intensify, with monthly production expected to be around 550,000 mt.

Tong Zeng, Jinrui Futures: The recent upward trend in zinc concentrate TCs has slowed, with imported ore stabilizing around $30 and domestic ore around 3,400-3,600 yuan/mt. Given the current zinc price and TCs, the profit from zinc smelting alone is low. However, due to by-products like minor metals and sulphuric acid, smelters still maintain profitability under comprehensive recovery. Based on current smelter production and maintenance plans, some smelters will undergo maintenance in May, and with the commissioning of new capacity from June to July, the production increase is in line with expectations.

Xiaoxiong Mo, Nonferrous Metals Researcher at Guotai Junan Futures Research Institute: Recently, zinc concentrate TCs have been relatively stable. With the resumption of mining operations and the gradual commissioning of new and expanded capacities, TCs are expected to maintain a steady upward trend. However, the increase in smelting operating rates will also curb the upward slope of TCs, with the Q2 TC peak likely around 4,000 yuan/mt. Smelter profits have seen significant recovery, with smelting revenue including silver and sulphuric acid by-products nearing 1,000 yuan/mt. Additionally, domestic smelter raw material inventory and port inventory remain at relatively high levels. Except for some small-scale maintenance smelters, overall production still has the potential for further increases. Preliminary estimates suggest a QoQ increase of about 100,000 mt in smelting production in Q2, with a slight QoQ decrease in Q3 due to seasonal production cuts, and a rise to the year's high in Q4.

[Institutional Consultation]: This week, LME zinc inventory saw a significant surge, mainly contributed by Singapore warehouses. Does this exacerbate concerns about overseas demand?

Shenghan Zhang, Lead and Zinc Analyst at Yide Futures Nonferrous Metals R&D Center: As a global hub for zinc ingot trade, Singapore has accumulated a large amount of unreported inventory. Currently, with the LME market in a contango structure (futures price higher than spot price), traders can lock in profits by buying spot and selling futures contracts. Additionally, the LME warehouse rental sharing mechanism incentivizes some traders to actively transfer inventory to warehouses for rental income. Traditional demand sectors (e.g., construction, automotive) are sluggish, while emerging applications (e.g., PV, ESS) have yet to form effective substitutes. Coupled with US and EU tariff policies suppressing exports, suppliers are choosing to release inventory pressure through warehouse transfers. As the LME "inventory game" is well understood by the market, price fluctuations remain relatively stable.

Tong Zeng, Jinrui Futures: This week, LME zinc inventory increased by nearly 80,000 mt, reaching an absolute value of 190,000 mt. The significant increase in zinc ingot inventory has heightened market concerns about overseas destocking.

Xiaoxiong Mo, Nonferrous Metals Researcher at Guotai Junan Futures Research Institute: The increase in LME inventory warrants and the rise in the ratio of cancelled warrants are driven more by the conversion of zinc ingots held by suppliers between reported and unreported inventory, with off-warrant activities concentrated in Singapore warehouses based on rent deals. Therefore, changes in LME zinc ingot inventory have become somewhat distorted in expressing overseas demand. However, concerns about overseas demand do exist, largely due to the impact of US tariff policies, with the initial phase of manufacturing structural shifts posing a risk of demand contraction.

[Institutional Consultation]: Recently, domestic zinc ingot social inventory rebounded but declined again within the week. How is the performance of domestic downstream demand?

Shenghan Zhang, Lead and Zinc Analyst at Yide Futures Nonferrous Metals R&D Center: Recently, domestic zinc ingot downstream demand has shown some signs of recovery, but uncertainties remain. In the galvanizing industry, orders are mainly concentrated in large enterprises, with strong demand for steel towers and guardrails, while PV orders fell short of expectations, and export orders remained stable. In the die-casting zinc alloy sector, furniture accessory orders were average, while orders for daily hardware like luggage zippers remained steady. In the zinc oxide industry, rubber-grade orders were relatively stable, chemical rubber orders improved, ceramic-grade and feed orders showed no significant changes, and electronic-grade orders were lower than the same period last year. Overall, terminal demand has not yet reached peak season levels, with downstream producers mainly buying the dip and restocking based on immediate needs. However, due to the recent significant drop in zinc prices, some downstream enterprises have seized the opportunity to restock at low prices, driving inventory destocking.

Tong Zeng, Jinrui Futures: Previously, as zinc prices continued to fall, downstream players took the opportunity to restock. Based on current inventory levels, downstream restocking has been relatively sufficient, and the marginal effect of further restocking is expected to slow. Due to reciprocal tariff issues, downstream orders are currently chaotic, with some industries rushing to export during the exemption period, while some foreign customers have already canceled orders. Overall, export orders in Q2 and Q3 need to be adjusted downward. On the other hand, domestic demand remains relatively stable, with good performance in home decoration orders in some regions.

Xiaoxiong Mo, Nonferrous Metals Researcher at Guotai Junan Futures Research Institute: The positive correlation between domestic social inventory and zinc prices, and the negative correlation between downstream raw material inventory and zinc prices, are quite pronounced. Downstream players tend to engage in speculative restocking based on prices, especially in the context of overcapacity and thin profit margins. Therefore, when zinc prices fell rapidly due to unexpected tariffs, domestic downstream players actively restocked at low prices, leading to destocking in social inventory, but not driven by actual terminal orders. In terms of domestic downstream orders, domestic demand remains relatively stable, while most export rush orders fell short of the previous round (before Chinese New Year). Apparent consumption is expected to peak and decline after April.

[Institutional Consultation]: Considering the current macro and supply-demand dynamics, what is the outlook for future zinc price trends?

Shenghan Zhang, Lead and Zinc Analyst at Yide Futures Nonferrous Metals R&D Center: Global trade frictions persist, with the effects of US tariff policies becoming evident, coexisting with demand shifts and economic downturn expectations. On the fundamentals side, the gradual resumption of overseas mining operations in 2025 is a given, and raw material issues have been largely resolved. TCs exceeding 3,000 yuan/mt have already turned some smelters profitable, and the global zinc market is expected to gradually move into surplus in 2025. However, current zinc ingot social inventory in seven regions remains at historically low levels for the same period. With increasing supply and relatively weak demand, the risk of zinc ingot inventory buildup is rising. The overall price center of zinc is expected to shift downward compared to previous levels, fluctuating rangebound around 21,500-23,000 yuan.

Tong Zeng, Jinrui Futures: Currently, macro sentiment plays a more dominant role in zinc price movements. On one hand, tariff policies are not yet fully clear, with countries still in the exemption period and mutual博弈. On the other hand, the supply side has not constrained production, leaving the surplus unchanged. In terms of price, zinc prices may fluctuate downward in the future, gradually testing smelting and mining costs.

Xiaoxiong Mo, Nonferrous Metals Researcher at Guotai Junan Futures Research Institute: The room for further restocking on the demand side is relatively limited, as previous low prices have already stimulated downstream players to replenish raw material inventory to high levels. Coupled with the high inventory of zinc ingots and alloys at smelters, fundamentals may not provide strong support for a significant rebound in zinc prices. After short-term fluctuations, the market is expected to remain weak. Earlier, macro funds gathered in the far end, creating a Back premium, and the pace of inventory destocking is expected to slow, potentially leading to a convergence in the far-end Back. In terms of domestic and overseas zinc prices, LME zinc has been more affected by macro factors, with deeper declines supporting a rebound in the ratio. Domestic-overseas arbitrage is profitable but structural losses need to be considered. Macro uncertainties remain, with attention on tariff negotiations and their implementation for potential trading opportunities.