The coefficient of low-grade zinc oxide first fell and then rose after the first half of 2025. How will it perform in H2? [SMM Analysis]

As of June 30, the most-traded SHFE zinc contract closed at 22,495 yuan/mt, rising by 270 yuan/mt month-on-month, with a decline of 1.21%. In June, zinc prices first fell and then rose, hitting a low of 21,660 yuan/mt in mid-month before rebounding to a high of 22,570 yuan/mt at the end of the month. As we enter July, how will zinc prices perform?

Macro Perspective. In June, geopolitical risks increased, and trade prospects became more uncertain, but later risks diminished. Additionally, US economic data was weak, and the US dollar index and US Treasury yields pulled back, boosting expectations for US Fed interest rate cuts. The phone call between the Chinese and US presidents brought optimistic market expectations. Moreover, the central bank's trillion-yuan reverse repo operations indicated a clear intention to release liquidity and boost domestic demand. 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 macro sentiment. As we enter July, geopolitical tensions still persist, and US economic data remains weak, reigniting market expectations for interest rate cuts.

Supply Side. With the continuous release of new capacity from smelters and the gradual resumption of maintenance enterprises, coupled with the arrival of the rainy season in some regions, electricity costs have decreased. Enterprises, enjoying high profits from sulphuric acid and minor metals YoY, have high production enthusiasm. The trend of increased refined zinc production continues. Although imports of zinc ingots and zinc concentrates decreased in May, zinc concentrate imports were still at a high level, up 84.26% YoY, indicating relatively loose supply, but the increase was lower than expected. As we enter July, with the concentrated arrivals of imported ore in the early stage, smelters' raw material inventories are relatively loose. Although some large smelters will undergo maintenance in July, TC continues to rise, and refined zinc enterprises enjoy good production profits. Additionally, some new zinc ingot capacities 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. Early-stage export orders were also continuously digested, with weak domestic demand. Overall, downstream zinc consumption gradually decreased in June. As we enter July, the third batch of consumer goods trade-in funds for this year will be disbursed in July. Relevant departments will formulate monthly and weekly "national subsidy" fund usage plans by sector to ensure the orderly implementation of the consumer goods trade-in policy throughout the year. However, with the increase in high-temperature weather and frequent heavy rainfall, terminal construction is restricted. It is expected that demand in July may decline, and zinc consumption will gradually weaken.

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