Inflation data falls short of expectations, zinc prices hold up well [SMM Morning Meeting Summary]

Zinc Morning Meeting Summary on May 14

Futures Market: Overnight, LME zinc opened at $2,691.5/mt. In the early session, a tug-of-war between longs and shorts caused LME zinc to fluctuate around the daily average line. During European trading hours, the center slightly dipped, reaching a low of $2,653/mt. As the night session began, longs increased their positions, driving LME zinc to rally rapidly, with the center moving up to around $2,720/mt. It touched a high of $2,721/mt at the end of the session, closing up at $2,720.5/mt, a gain of $51.5/mt or 1.93%. Trading volume decreased to 9,595 lots, while open interest increased by 1,926 lots to 220,000 lots. Overnight, the most-traded SHFE zinc 2506 contract opened at 22,265 yuan/mt. After fluctuating around the daily average line in the early session, driven by increased long positions, SHFE zinc fluctuated upward, touching a high of 22,695 yuan/mt at the end of the session. It closed up at 22,680 yuan/mt, a gain of 355 yuan/mt or 1.59%. Trading volume decreased to 128,000 lots, while open interest decreased by 1,608 lots to 110,000 lots.

Macro: US Treasury Secretary: The US will bring back pharmaceuticals, semiconductors, and other strategic industries to the domestic market. Trump again pressured Powell after the CPI report, calling for an interest rate cut and stating that the stock market would surge. The US imposed a new round of sanctions on Iran-related shipping. Zelenskyy only accepts talks with Putin. The People's Bank of China and the Central Bank of Brazil signed a memorandum of understanding on financial strategic cooperation and renewed a bilateral local currency swap agreement. China Central Depository & Clearing Co., Ltd.: Waived account opening fees for overseas central bank-type institutions.

Spot Market:

Shanghai: In the morning session, the market quoted premiums of 70-100 yuan/mt against the average price, with no quotes against the futures market. In the second trading session, regular domestic brands were quoted at premiums of 350-420 yuan/mt against the 2506 contract. The high-end brand Shuangyan was quoted at a premium of 650 yuan/mt against the 2506 contract, while Hazin was quoted at a premium of 300 yuan/mt against the 2506 contract. As the delivery date approached, the price spread between nearby contracts narrowed significantly, causing suppliers to lower their spot premium quotes. In the morning session, as the futures market declined, some enterprises made purchases at lower prices, but they remained bearish on subsequent premiums. Overall spot trading volume remained at just-in-time procurement levels yesterday.

Guangdong: It was quoted at a discount of 20 yuan/mt against Shanghai spot prices, with the Shanghai-Guangdong price spread widening. In the first session, suppliers quoted premiums of 320-350 yuan/mt for Qilin, Mengzi, and Lanxin brands. In the second session, Qilin, Mengzi, and Lanxin brands were quoted at premiums of 320-340 yuan/mt against the online price. Overall, spot premiums and discounts in Guangdong continued to decline yesterday. Affected by the relatively high spot premiums and discounts, downstream consumers mainly made just-in-time procurements to consume their existing inventory. Meanwhile, some downstream consumers remained bearish on subsequent premiums and discounts, resulting in low purchase willingness. Additionally, the decline in the price spread between futures contracts yesterday drove down market premiums and discounts.

Tianjin: Tianjin was quoted at a discount of around 30 yuan/mt against Shanghai prices. By the end of the morning session, Chihong was quoted at premiums of 250-400 yuan/mt against the 06 contract, Hongye at premiums of 300-430 yuan/mt against the 06 contract, and Bailing at premiums of 430 yuan/mt (delivered) against the 06 contract. The high-end brand Zijin was quoted at premiums of around 500-510 yuan/mt against the 06 contract. The futures market dropped back slightly, with the price spread between futures contracts narrowing. Coupled with some arrivals in Tianjin, traders lowered premiums to sell, while downstream buying sentiment remained low, waiting for delivery. Overall market transactions were moderate.

Ningbo: Spot premiums against Shanghai were quoted at 20 yuan/mt, with mainstream quotes in the Ningbo area against the 2506 contract. In the first period, Yongchang quoted premiums of 480 yuan/mt against the 2506 contract, Qilin quoted premiums of 460-480 yuan/mt against the 2506 contract, Huize quoted premiums of 680 yuan/mt against the 2506 contract, and SMC quoted premiums of 330-360 yuan/mt against the 2506 contract. In the second period, traders maintained the same quotes as the previous period. Yesterday, domestic zinc ingot quotes from traders remained firm, but imported zinc ingots continued to flow into the Ningbo market at low prices, leading to significant divergence in market quotes. However, downstream buyers tended to purchase low-priced imported zinc ingots. Domestic spot transactions remained sluggish yesterday, and overall spot premiums continued to decline.

Social inventory: On May 13, LME zinc inventory decreased by 1,900 mt to 167,950 mt, a drop of 1.12%. According to SMM communication, as of May 12, the total zinc ingot inventory in seven regions monitored by SMM was 85,500 mt, an increase of 1,400 mt compared to May 6 and an increase of 2,200 mt compared to May 8, indicating a rise in domestic inventory.

  Zinc price forecast: Overnight, LME zinc recorded a long lower shadow bullish candlestick, with support provided by the 5-day moving average. Due to US CPI data falling below expectations, the US dollar pulled back, and LME zinc rose. Overnight, SHFE zinc recorded a bullish candlestick, with the MACD bullish candlestick expanding. Overnight, driven by the strength in the LME market, SHFE zinc surged rapidly. However, with the expected arrival of imports and downstream purchases remaining inactive, spot premiums pulled back quickly, the price spread between near-month contracts narrowed, and the likelihood of inventory increases rose, with fundamental support marginally weakening.