It is a foregone conclusion that zinc prices will decline in H1. Where will zinc prices go in H2? [SMM Analysis]

Unlike the significant increase in zinc prices in the first half of 2024, the main SHFE zinc contract showed a downward trend in the first half of 2025. As of July 10, 2025, the main SHFE zinc contract had fallen by 11.56% on a half-yearly basis, and on April 7, it dropped to the lowest point of the half-year at 21,620 yuan/mt, hitting a new low in the past year.

Specifically, in early January, the US announced a high inflation rate, and the market expected that the US Fed might slow down the pace of interest rate cuts. Subsequently, Trump took office, and the market began to trade in advance on some related political and economic policies. The US dollar index continued to fluctuate at highs, and bearish funds entered the market, putting pressure on the zinc price trend. On the supply side, the increase in January was relatively limited. Coupled with the limited opening time of the zinc ingot import window in January, the inflow of imported zinc ingots was expected to remain stable, with no significant increase in overall zinc ingot supply. On the consumption side, as the Chinese New Year holiday approached, domestic downstream zinc enterprises gradually began to shut down production for the holiday, with the number of holiday days ranging from a few to several tens. In January, most downstream enterprises had insufficient production days. Although some enterprises stocked up on zinc ingots before the holiday, overall zinc ingot consumption still declined significantly. The fundamental factors provided insufficient support for zinc prices, coupled with the gradual easing of the domestic zinc ore market, causing zinc prices to decline throughout January, with a monthly decline of 7.09%. In February, after the holiday, the US introduced a series of tariff policies against China and other countries, continuing to disrupt market sentiment. However, China simultaneously proposed to continue expanding the trade-in policy for consumer goods and continuously increased fiscal and monetary policies. The favorable information improved macro sentiment, and overall, it provided certain support for zinc prices in February. On the supply side, the overall decline in refined zinc production in February was relatively significant. With the continuous increase in zinc concentrate TCs, the profits of domestic smelters gradually recovered, and currently, some smelters have entered a profitable state, enhancing their willingness to increase production. However, affected by the Chinese New Year, the downstream resumption of work was relatively slow, and the demand for zinc ingots weakened. Overall, the monthly zinc price continued to decline by 0.97% in February.

In March, internationally, Trump's tariff policy escalated, while domestically, it coincided with the Two Sessions. Apart from the special treasury bonds of 1.3 trillion yuan, the situation largely met market expectations, with GDP growth projected at around 5% and the fiscal deficit ratio at around 4%. A moderately loose monetary policy, coupled with timely RRR cuts and interest rate cuts, indicated a continued improvement in domestic policies. On the supply side, as domestic ore processing fees rose above 3,400 yuan/mt (metal content) and sulphuric acid prices increased again, smelters' production enthusiasm improved, leading to postponed maintenance schedules and increased production. However, on the consumption side, galvanizing operations in March were slightly lower than the same period last year, with limited actual consumption recovery in the overall market. Nevertheless, power steel towers and some export orders performed well, with die-casting zinc alloy production showing a polarization between large and small factories, with orders more concentrated in large factories, leading to better overall operations than the same period last year. Zinc oxide, on the other hand, showed relatively stable performance, with improved consumption and macro sentiment, resulting in a slight monthly gain of 0.13% in March.

In April, tariff issues resurfaced, with the US imposing reciprocal tariffs, increasing uncertainty in international trade and spreading market concerns. Zinc prices came under pressure, plummeting to the year's low. On the supply side, although ore processing fees struggled to rise and smelters' raw material inventories dropped to 27 days, they remained high. On the consumption side, due to tariff issues, there was a certain rush to export and early release of future demand, leading to increased operations. However, the macro impact of tariffs persisted, and the monthly line in April closed down 4.33%.

In May, China and the US began negotiations, leading to a certain easing of the trade war. Although a series of RRR cuts and interest rate cut policies were announced domestically, they largely fell short of market expectations. Mid-month, the negotiation results between China and the US were unveiled, with significant reductions in tariff rates. Improved macro sentiment drove zinc prices higher, but as market sentiment gradually faded, the impact of macro factors weakened, and zinc prices once again maintained a fluctuating trend. Driven by sulphuric acid profits, some smelters increased their production. Additionally, a large influx of imported zinc ingots into the domestic market in May continued to supplement domestic zinc ingot supply, resulting in a relatively high overall zinc ingot supply level in May. As the tariff conflict between China and the US eased, downstream zinc enterprises resumed production of previously suspended export orders mid-month. Overall orders and consumption remained robust, but due to limited new export orders and a decline in some enterprises' domestic trade orders, overall, zinc downstream consumption in May did not increase MoM. Under oversupply conditions, the monthly zinc price closed down 0.96% in May. Entering June, geopolitical risks increased, and the uncertainty of trade prospects rose, but later risks diminished. Additionally, weak US economic data led to a pullback in the US dollar index and US bond yields, boosting expectations for US Fed interest rate cuts. A phone call between the Chinese and US presidents brought optimistic market expectations. The central bank's trillion-yuan reverse repo operations clearly indicated its intention to release liquidity and boost domestic demand. Meanwhile, at the domestic Shanghai Lujiazui Forum, 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, and macro sentiment was generally positive. With the continuous release of new smelter capacity and the gradual resumption of maintenance enterprises, coupled with the arrival of the rainy season in some regions and a reduction in electricity costs, enterprises, benefiting from high YoY profits in sulphuric acid and minor metals, maintained high production enthusiasm, and the trend of increased refined zinc production continued. However, from a consumption perspective, in June, as temperatures gradually rose and the plum rain season approached, infrastructure project construction was restricted. Orders across various terminal sectors declined, previously accumulated export orders continued to be digested, and domestic demand was weak. Overall, zinc downstream consumption gradually decreased in June. Improved macro sentiment supported zinc prices, and the monthly zinc price closed up 1.21% in June. Overall, in H1, zinc prices performed weakly, mainly driven by concerns over trade prospects brought about by tariff policies and expectations of oversupply on the supply side.

Looking ahead to H2, as tariff uncertainties resurfaced in July, with Trump announcing on August 1 that he would impose tariffs on countries that had previously avoided them, market expectations for interest rate cuts weakened. Meanwhile, the Sixth Meeting of the Central Financial and Economic Affairs Commission was held, emphasizing "regulating enterprises' low-price and disorderly competition in accordance with laws and regulations, and promoting the orderly exit of backward capacity." Market sentiment improved somewhat. On the ore supply side, despite disruptions at Kipushi in Q2, the annual zinc production guidance remained unchanged at 180,000-240,000 mt in metal content. The Huoshaoyun mine continued to ramp up production, bringing a significant increase in domestic zinc ore output. Additionally, by June, the resumption of domestic zinc ore production was largely completed. Considering the seasonal pattern of domestic zinc ore operations, production from these resumed mines continued to recover in Q3. However, Q4 marked the peak period for maintenance of domestic zinc ore mines, coupled with the temporary shutdown of some northern mines at year-end. It is expected that domestic zinc ore production will increase first and then decrease in H2, possibly reaching its annual peak in July/August, with the domestic zinc ore market supply remaining consistently adequate. Regarding zinc prices, considering the fluctuations in macro sentiment and the uncertainty surrounding the US Fed's interest rate cuts, SMM expects that the center of zinc prices may decline slightly in H2.