Zinc Prices Continued to Decline in September: How Will They Perform in October? [SMM Analysis]

SMM September 29:
As of September 29, the most-traded SHFE zinc contract closed at 21,800 yuan/mt, down 340 yuan/mt for the month, a decline of 1.54%. Zinc prices remained stable and consolidated throughout September before starting a downward trend mid-month and hitting a low of 21,665 yuan/mt by the end of the month. How will zinc prices perform in October?

From a macro perspective. In September, US PPI data came in below expectations, while initial jobless claims continued to rise. The US Fed cut interest rates by 25 basis points as scheduled during its policy meeting, but the monetary policy stance fell short of expectations. For zinc prices, the positive factors were exhausted, and SHFE zinc prices declined steadily. Entering October, US Fed officials have been speaking frequently, reigniting market expectations for an interest rate cut. The US government shutdown issue has also unsettled the market.

On the supply side, earlier, due to favorable sulfuric acid prices and profits, most smelters postponed routine maintenance typically scheduled for July and August, with some enterprises conducting routine maintenance in September. As processing fees gradually declined, corporate production enthusiasm weakened, leading to a reduction in September output. On the import front, due to widening import losses, refined zinc imports were primarily under long-term contracts, while zinc concentrate imports saw a slight decline. However, on a YoY basis, they still increased by approximately 30.6 percentage points. Influenced by price and profitability factors, domestic smelters showed a greater preference for procuring domestic ore. Entering October, previously idled smelters gradually resumed production. With sulfuric acid still in its peak season with favorable prices and minor metal prices remaining strong, despite expectations of lower processing fees, refined zinc enterprises maintained good production profits. Overall zinc ingot supply levels in October were higher than in September. However, with the export window opening, opportunities for zinc ingot exports emerged.

Consumption side. In September, as weather conditions improved, end-user operations normalized, and consumption showed marginal improvement. However, domestic demand remained weak, with orders lower than the same period in previous years. Overall, September consumption increased MoM but was weaker YoY. Entering October, affected by the National Day and Mid-Autumn Festival holidays, end-users took breaks and transportation was constrained, with many downstream enterprises having holiday arrangements during the National Day period. Nevertheless, during the October peak season, consumption is expected to remain resilient. State Grid's new round of tenders will commence in October, and export orders continue to offer favorable profits. Consumption in October is anticipated to remain resilient but may underperform compared to the same period.

Looking ahead to October, the domestic fundamentals maintain a pattern of strong supply and weak demand. Zinc ingot production continues to increase, while consumption expectations remain subdued. However, the turning point for zinc concentrate TCs has emerged, LME inventory continues to decline, and overseas conditions remain relatively robust, potentially providing support for zinc prices. Continued attention should be paid to subsequent macro guidance and overseas fundamental performance.