China-US Negotiations Release Positive Signals, Providing Certain Support to Zinc Prices [SMM Morning Meeting Summary]

Zinc Morning Meeting Summary on May 12

Futures Market: On Friday, LME zinc opened at $2,638/mt. Early in the session, a tug-of-war between longs and shorts saw the bears gain the upper hand, pushing LME zinc to a low of $2,618/mt. Subsequently, during the European trading session, longs entered the market at lower levels, driving LME zinc higher, with the center moving above the daily average line. Entering the night session, LME zinc reached a high of $2,661/mt before pulling back slightly at the end of the session, ultimately closing up at $2,655.5/mt, a gain of $19.5/mt or 0.74%. Trading volume decreased to 11,414 lots, while open interest increased by 3,291 lots to 216,000. On Friday, the most-traded SHFE zinc 2506 contract opened higher with a gap at 22,360 yuan/mt. Early in the session, SHFE zinc reached a high of 22,390 yuan/mt before longs took profits and exited, causing SHFE zinc to dive lower, with the center moving down to around 22,290 yuan/mt. At the end of the session, SHFE zinc accelerated its decline, reaching a low of 22,210 yuan/mt, ultimately closing up at 22,260 yuan/mt, a gain of 10 yuan/mt or 0.04%.

Macro: Both the United States and China made positive comments on the Geneva trade talks, with details to be released on Monday. China's consumer prices in April remained at a low level, and it is expected that policies will be strengthened in mid-year. The fourth round of negotiations on the Iranian nuclear issue concluded, with the United States and Iran holding firm on their positions regarding uranium enrichment.

Spot Market:

Shanghai: In the morning session, the market quoted premiums of 100-140 yuan/mt against the average price, with almost no quotes against the futures market. In the second trading session, quotations for ordinary domestic zinc ingots were at premiums of 580-590 yuan/mt against the 2506 contract, Honglu-v at a premium of 570 yuan/mt against the 2506 contract, Huize at a quoted premium of 650 yuan/mt against the 2506 contract, and the high-end brand Shuangyan at a quoted premium of 640 yuan/mt against the 2506 contract. On Friday, long-term contracts for Qilin and Qinzin zinc ingots arrived, and imported zinc ingots continued to flow into the market at low prices. With an increase in market supply, traders lowered their spot premium quotes. However, as the futures market maintained a fluctuating trend, downstream buyers continued to wait and see, and spot transactions did not improve.

Guangdong: Initially, suppliers quoted premiums of 470-520 yuan/mt for Qilin, Mengzi, Danxia, and Lanxin zinc. In the second session, Qilin, Mengzi, and Lanxin zinc were quoted at premiums of 450-470 yuan/mt against the online price. Overall, on Friday, zinc prices maintained a fluctuating trend. However, with weak downstream consumption in Guangdong currently, enterprises mostly restocked based on immediate needs, and market trading was sluggish. On Friday, the price spread between futures contracts remained unchanged from the previous day, but traders continuously lowered premiums to facilitate sales. Spot premiums for all brands declined, driving the overall spot premium in Guangdong down to 480 yuan/mt.

Tianjin: By the close of the morning session, Xinzi was quoted at premiums of 470-480 yuan/mt against the 06 contract, Xikuang at a delivered premium of 450 yuan/mt against the 06 contract, Chihong at a premium of around 450 yuan/mt against the 06 contract, and the high-end brand Zijin at premiums of 530-580 yuan/mt against the 06 contract. The futures market continued to fluctuate, with downstream consumption weakening slightly. Restocking was mainly based on immediate needs, and downstream buyers remained bearish on premiums. Large factories primarily relied on long-term contracts, and the futures market had not yet reached the downstream's psychological price level. Traders continuously lowered premiums to facilitate sales, resulting in sluggish market transactions.

Ningbo: Premiums against Shanghai spot quotes were at 70 yuan/mt. The mainstream quotes in Ningbo were against the 2506 contract. In the first time period, Yongchang offered premiums of 550-580 yuan/mt against the 2506 contract, Qilin offered a premium of 580 yuan/mt against the 2506 contract, Baiyin offered a premium of 610 yuan/mt against the 2506 contract, and Huize offered a premium of 680 yuan/mt against the 2506 contract. In the second time period, traders maintained the quotes from the previous time period. Traders in the Ningbo market continued to stand firm on quotes, but enterprises hardly inquired about prices amid high premiums for spot cargo. Additionally, imported zinc ingots in Ningbo continued to be pre-sold at low prices, squeezing out domestic spot transactions. With downstream purchasing as needed, spot trades of domestic zinc were sluggish last Friday.

Social Inventory: On May 9, LME zinc inventory decreased by 325 mt to 170,325 mt, a drop of 0.19%. According to communication with SMM, as of May 8, the total zinc ingot inventory across seven locations tracked by SMM was 83,300 mt, an increase of 6,300 mt from April 30 and a decrease of 800 mt from May 6. Domestic inventory recorded a decrease.

Zinc Price Outlook: Last Friday, LME zinc recorded a bullish candlestick, with the 5-day moving average providing support below. With the import window open and LME inventory continuing to fall, it is difficult to say that domestic supply is tight amid the supplement of imported zinc. Zinc prices maintained a fluctuating trend, and attention should be paid to the results of the China-US negotiations. Last Friday, SHFE zinc recorded a small bearish candlestick, but the center of the daily candlestick moved upward, with the 5-day moving average providing support below. The overall changes in zinc fundamentals were relatively small. Low inventory provided bottom support for zinc prices. Macroscopically, positive signals were released from the China-US negotiations, which are expected to potentially boost zinc prices.