Macro and Fundamentals Resonate, LME Zinc Center Pulls Back [SMM Morning Meeting Summary]

Futures Market:

Overnight, LME zinc opened at $2,724/mt. In the early session, LME zinc edged down slightly, but recovered losses and climbed to a high of $2,737/mt near the European trading session. However, as bulls reduced their positions, LME zinc plunged below the daily average line to a low of $2,680/mt, eventually closing at $2,684.5/mt, down $40/mt or 1.47%. Trading volume decreased to 80,411 lots, while open interest fell by 4,611 lots to 213,000 lots. Overnight, the most-traded SHFE zinc 2506 contract opened at 22,515 yuan/mt. In the early session, SHFE zinc briefly climbed to a high of 22,520 yuan/mt, then edged down slightly below the daily average line as bulls reduced their positions. Subsequently, bulls and bears engaged in a tug-of-war, with the price center fluctuating around 22,410 yuan/mt. It eventually closed lower at 22,415 yuan/mt, down 165 yuan/mt or 0.73%. Trading volume decreased to 38,011 lots, while open interest fell by 2,641 lots to 64,534 lots.

Macro:

US House Speaker: Agreement reached on $40,000 cap for state and local tax deductions; Demand for 20-year US Treasury bond auction was weak; US Commerce Secretary: Hopes to reach trade agreements with most major partners before tariff suspension expires; US media: Israel is preparing to swiftly strike Iran's nuclear facilities if US-Iran talks collapse; Trump clashes with South African president; China and the ten ASEAN countries fully complete negotiations for the China-ASEAN Free Trade Area 3.0; Eight departments including the National Financial Regulatory Administration: Support eligible small and micro enterprises to list on the New Third Board and, after growing, list on the Beijing Stock Exchange.

Spot Market:

Shanghai: The futures market rose compared to the previous day. Inquiries and purchases by downstream enterprises slowed down, and market traders faced difficulties in selling their cargoes. Spot premiums declined slightly, with spot trades mainly occurring among traders.

Guangdong: Overall, despite the overnight rise in the futures market, the number of market inquiries increased due to downstream concerns about subsequent zinc price increases. The spot trading atmosphere was relatively active, and spot premiums and discounts rose.

Tianjin: The futures market rebounded slightly. Downstream enterprises were cautious about purchasing at high prices, but some enterprises, worried about subsequent futures market increases, engaged in minor restocking. Traders continued to lower their selling quotes yesterday, and overall market transactions were average.

Ningbo: Although the futures market rose, the cargo volume in the Ningbo market was limited yesterday. Domestic traders continued to refuse to budge on prices, and spot premiums remained stable. Downstream enterprises inquired and purchased on demand, with transactions appearing sluggish.

Social Inventory: On May 21, LME zinc inventory increased by 1,150 mt to 157,875 mt, a decrease of 0.73%. According to SMM communications, as of Monday (May 19), the total zinc ingot inventory across seven locations tracked by SMM was 83,800 mt, down 1,700 mt from May 12 and 2,500 mt from May 15, indicating a decrease in domestic inventory.

Zinc Price Forecast: Overnight, the LME zinc contract recorded a bearish candlestick, with the 60-day moving average acting as resistance above and the 20-day moving average providing support below. The weak demand for the 20-year U.S. Treasury bond auction and the relatively dismal results have heightened market concerns about the economy. Meanwhile, overseas inventories have increased, causing the center of LME zinc prices to decline amid the resonance of macro and fundamental factors. Overnight, the SHFE zinc contract also recorded a bearish candlestick, with the 40/60-day moving averages acting as resistance above and the lower Bollinger Bands providing support below. Recently, export orders for some downstream sectors have shown signs of improvement, driving a slight recovery in consumption. At the same time, under the expectation of loose supply, it is expected that SHFE zinc will maintain a fluctuating trend.