Zinc prices fell first and then rose in June. How will they perform in July? [SMM Analysis]

As of June 30, the most-traded SHFE zinc contract closed at 22,495 yuan/mt, up 270 yuan/mt month-on-month, but down 1.21%. In June, zinc prices initially declined before rebounding, hitting a low of 21,660 yuan/mt mid-month and then surging to a high of 22,570 yuan/mt by the end of the month. What will be the trend of zinc prices in July?

Macro Perspective. In June, geopolitical risks increased, and uncertainties in trade prospects rose, but later risks diminished. Additionally, weak US economic data and a pullback in the US dollar index and US Treasury yields fueled expectations for a US Fed interest rate cut. The phone call between the Chinese and US presidents brought optimistic market expectations. The central bank's trillion-yuan reverse repo operations signaled a clear intention to boost domestic demand by releasing liquidity. Meanwhile, at the domestic Lujiazui Forum in Shanghai, the central bank introduced eight policy measures to support the construction of Shanghai as an international financial center, with monetary policy as the main focus, creating a warm macroeconomic sentiment. Entering July, geopolitical tensions persist, and US economic data remains weak, reigniting market expectations for an interest rate cut.

Supply Side. With the continuous release of new capacity from smelters and the gradual resumption of maintenance-affected enterprises, coupled with the onset of the rainy season in some regions leading to lower electricity costs, and with enterprises enjoying high profits from sulphuric acid and minor metals on a YoY basis, production enthusiasm among enterprises remains high. The trend of increased refined zinc output continues. Although imports of zinc ingots and zinc concentrates declined in May, zinc concentrate imports were still high, up 84.26% YoY. Supply remains relatively loose, but the increase is lower than expected. Entering July, with the concentrated arrivals of previously imported ore, smelters' raw material inventories are relatively ample. Despite maintenance at some large smelters in July, TC continues to rise, and production profits for refined zinc enterprises remain good. Additionally, some new zinc ingot capacity will be gradually released in July. It is expected that the overall zinc ingot supply level in July will remain strong.

Demand side. In June, as temperatures gradually rose and the plum rain season approached, infrastructure project construction was restricted, and orders across various terminal sectors declined. Previous export orders were also being continuously fulfilled, with weak domestic demand. Overall, downstream zinc consumption gradually decreased in June. Entering July, the third batch of trade-in funds for consumer goods this year will be allocated in July. Relevant departments will formulate monthly and weekly implementation plans for the "national subsidy" funds by sector to ensure the orderly implementation of the trade-in policy for consumer goods throughout the year. However, with the increase in high-temperature weather and frequent heavy rainfall, terminal construction will be restricted. It is expected that demand in July may decline, and zinc consumption will gradually weaken.

Looking ahead to July, the domestic fundamentals side shows a pattern of strong supply and weak demand. Zinc ingot production is expected to increase, and it is anticipated that social inventory of zinc ingots may start to build up, putting pressure on zinc prices. However, there are many disturbances in overseas fundamentals, with zinc demand in Southeast Asian countries remaining strong. LME inventory continues to destock to a low level, indicating robust overseas conditions that may support zinc prices. It is necessary to continuously monitor subsequent macro guidance and the performance of overseas fundamentals.