US credit rating downgrade disturbs market sentiment, with LME zinc recording three consecutive negative sessions [SMM Morning Meeting Summary]

Futures Market:

Overnight, LME zinc opened at $2,689.5/mt. After opening, LME zinc fluctuated considerably along the daily average line, reaching a high of $2,706.5/mt during the session. Entering the night session, the center of LME zinc moved downward, operating below the daily average line. It touched a low of $2,670.5/mt at the end of the session, closing down at $2,672.5/mt, a drop of $13.5/mt or 0.50%. Trading volume decreased to 84,672 lots, and open interest decreased by 4,336 lots to 224,000 lots. Overnight, the most-traded SHFE zinc 2506 contract opened at 22,415 yuan/mt. After opening, SHFE zinc briefly touched a high of 22,490 yuan/mt. Subsequently, as bulls reduced their positions, SHFE zinc plunged downward, operating below the daily average line and touching a low of 22,360 yuan/mt. Then, as bears reduced their positions, SHFE zinc rebounded, recovering most of the losses. However, at the end of the session, bulls reduced their positions and exited the market, causing SHFE zinc to decline again below the daily average line. It closed down at 22,405 yuan/mt, a drop of 50 yuan/mt or 0.22%. Trading volume decreased to 44,280 lots, and open interest decreased by 4,755 lots to 80,805 lots.

Macro:

The US Treasury Department does not expect to announce any trade agreements at this week's G7 finance ministers' meeting. The US Fed's Vice Chair stated that the downgrade of the US credit rating by Moody's would be treated as general data in policy formulation. Putin said that Russia is ready to cooperate with Ukraine on a memorandum for peace talks. Trump indicated that Russia and Ukraine would immediately commence negotiations. The EU will propose to G7 finance ministers this week to lower the price cap on Russian seaborne oil. Iran's Deputy Foreign Minister stated that if the US insists on Iran halting uranium enrichment, nuclear negotiations will fail. The State Administration of Foreign Exchange stated that foreign investment in domestic stocks turned to net purchases in late April, and foreign investors' willingness to allocate RMB assets continued to improve.

Spot Market:

Shanghai: In the morning session, zinc prices on the futures market edged lower. Downstream enterprises restocked and purchased at lower prices. Some traders reported moderate spot trading performance yesterday, with spot premiums holding steady.

Guangdong: Overall, the spot trading atmosphere in Guangdong remained sluggish. Yesterday, the futures market fluctuated considerably, and there were still many traders offering cargoes in the market. However, downstream procurement enthusiasm was insufficient, and spot premiums declined.

Tianjin: Yesterday, the futures market pulled back somewhat, but downstream procurement enthusiasm was low. Restocking was mainly for immediate needs or based on long-term contracts. Overall demand was weak. Traders continuously lowered premiums to facilitate sales, and overall market trading was moderate.

Ningbo: Long-term contract zinc ingots arrived in Ningbo yesterday, and the number of traders offering cargoes increased. The futures market edged lower slightly, and traders' spot premium quotes held steady. Downstream enterprises restocked somewhat at lower prices, and spot trading performance was moderate.

Social Inventory:

On May 19, LME zinc inventory decreased by 3,400 mt to 160,800 mt, a decline of 2.07%. According to communication with SMM, as of Monday (May 19), the total zinc ingot inventory across seven locations tracked by SMM was 83,800 mt, a decrease of 1,700 mt from May 12 and a decrease of 2,500 mt from May 15, indicating a decline in domestic inventory.

Zinc Price Forecast:

Overnight, LME zinc recorded three consecutive bearish candlesticks, with the 40-day moving average acting as resistance above and the 20-day moving average providing support below. Atlanta Fed President Bostic reiterated his preference for only one interest rate cut this year, while Moody's downgraded the US credit rating, which had a certain impact on market sentiment, causing the center of LME zinc to pull back. Overnight, SHFE zinc recorded a bearish candlestick, with the 5-day moving average acting as resistance above and the lower Bollinger Bands providing support below. Driven by the recent easing of trade tensions, consumption in some downstream sectors has shown a slight recovery. Meanwhile, there are still expectations for an increase in supply. Going forward, attention can be paid to the situation of terminal export orders. It is expected that zinc prices will maintain a fluctuating trend in the short term.