Short-term zinc prices fluctuated at lows [Institutional Commentary]

On Tuesday, the SHFE zinc index closed down 0.53% at 22,263 yuan/mt, with total open interest for unilateral trading at 236,500 lots. As of 15:00 on Tuesday, LME zinc 3S rose by $12 to $2,607/mt compared to the same period the previous trading day, with total open interest at 203,300 lots. The average price of SMM #0 zinc ingot was 22,580 yuan/mt, with the Shanghai spot-futures price spread at 165 yuan/mt, Tianjin at 225 yuan/mt, Guangdong at 445 yuan/mt, and the Shanghai-Guangdong price spread at -280 yuan/mt. The SHFE zinc ingot futures inventory recorded 5,200 mt, with the domestic Shanghai spot-futures price spread at 165 yuan/mt, and the price spread between the continuous contract and the 1st contract after expiration of front-month contract at 240 yuan/mt. The LME zinc ingot inventory recorded 192,200 mt, with LME zinc ingot cancelled warrants at 36,400 mt. The SHFE/LME price ratio after excluding exchange rates was 1.163, and the zinc ingot import profit/loss was -34.75 yuan/mt. According to SMM data, domestic social inventory slightly decreased to 93,000 mt.

Overall, the medium-term bearish outlook for zinc remains unchanged due to the surplus of zinc. Rapid profit recovery has stimulated high operating rates in zinc smelting, and the approaching import window may lead to an inflow of imported zinc ingots, resulting in an expected loosening of zinc ingot supply. After the Qingming Festival, zinc prices fell significantly, prompting primary enterprises to restock at low levels, with primary raw material inventories at historically high levels. It is expected that downstream purchases will gradually weaken after the peak season. Currently, macro disturbances are receding, and SHFE zinc volatility continues to decline. It is expected that zinc prices will fluctuate at lows in the short term, and in the medium term, with the buildup of social inventory, zinc prices still face downward risks.