What are the reasons for the consistently weak premiums and discounts of zinc ingot in Tianjin recently? [SMM Analysis]

SMM August 25 News: Recently, the premiums and discounts in the Tianjin area have been running at low levels. Affected by environmental protection-driven production restrictions, some small factories in Tianjin have suspended operations, and transportation has been restricted. How will the premiums and discounts evolve going forward?

Supply side, the production of major brand smelters in the Tianjin area was relatively normal in August, with ample raw materials and an increased willingness to produce due to favorable sulphuric acid prices. Some new production lines continued to ramp up, leading to an increase in zinc ingot production. Zinc ingot inventory in Tianjin kept rising. By mid to late August, influenced by the SCO meeting and military parade, environmental protection requirements in the Beijing-Tianjin-Hebei region became stringent. Only new energy vehicles were allowed into factories in Tianjin and Tangshan, while some areas required compliance with National VI standards. The transportation of zinc ingots was also restricted, suppressing premium increases. Traders faced difficulties in shipping goods, and premiums and discounts in Tianjin remained at a discount level.

Demand side, the main downstream consumers of zinc in the Tianjin area are primarily galvanising enterprises. As August marks the tail end of the off-season, overall downstream demand is relatively weak. Due to fluctuating downward ferrous metals prices, sales of galvanized pipes have been poor, and operations at pipe factories have gradually weakened. In terms of structural components, orders for steel towers remain relatively resilient, but demand for guardrails, lamp rods, and PV mounting brackets has been poor. Weak downstream demand has suppressed premium increases. Additionally, in mid-to-late August, some small factories in the Tianjin area were shut down due to environmental protection measures, while large factories faced transportation restrictions, leading to a decline in production and weaker zinc ingot demand.

It is expected that some smelters in the northern region will have maintenance plans in September, potentially leading to a decrease in zinc ingot production. As September enters the traditional peak consumption season, with extreme weather conditions decreasing and temperatures gradually cooling, some companies anticipate an improvement in demand. Zinc ingot demand is expected to increase, and premiums in the Tianjin area are projected to rise slightly, though they may operate near parity.