Zinc Prices Under Pressure and Retreating in June: How Will They Perform in July? [SMM Analysis]

SMM, June 30:

As of June 30, the most-traded SHFE zinc contract closed at 24,350 yuan/mt, down 615 yuan/mt for the month, a decline of 2.46%. June saw SHFE zinc retreat from highs, touching a high of 25,355 yuan/mt early in the month and a low of 23,720 yuan/mt at month-end, with the overall price center pulling back. Entering July, the ore tightness situation in China persists; how will zinc prices perform?

Macro side. In June, the market continued to focus on the Middle East situation. A ceasefire between both sides and the opening of the Strait of Hormuz boosted market sentiment, leading to a broad rebound in non-ferrous metals prices early in the month, with zinc prices also rising. Later, expectations for US Fed interest rate hikes resurfaced, with the market pricing in a 25-basis-point hike within the year, increasing liquidity risk and dragging non-ferrous metals broadly lower, which weighed on zinc prices.

Supply side. In June, strikes in Bolivia outside China remained unresolved, and imported ore TCs continued to slide; domestically, TCs dropped to -200 yuan/mt in metal content. Tightness on the ore side supported zinc prices. Entering July, although smelter profit margins have narrowed significantly, leading to increased routine maintenance and production cuts, and July production is expected to decline somewhat, TCs are still expected to have downside room given the high smelter operating rates in the near term, and ore side tightness will continue to support zinc prices. While domestic zinc concentrate TCs fell to historical lows, the sulphuric acid price remains high, preventing signs of large-scale production cuts by smelters. Refined zinc production in July is expected to see limited MoM decline, and domestic zinc ingot supply remains robust, exerting some pressure on zinc prices.

End-use consumption side. June was the traditional off-season for domestic consumption, with end-use consumption continuing to weaken, and export orders for downstream zinc products showed no standout performance. The consumption side exerted pressure on zinc prices. Entering July, increasing rainfall across various regions, combined with rising temperatures, will jointly impact end-user operating rates. The real estate sector performed poorly, and the disbursement of local government special bond funds fell short of expectations, while drawings for steel tower-related projects have yet to be released. Overall, consumption in July will continue to weaken, persistently exerting pressure on zinc prices.

Overall view. On the macro front, the market will continue to focus on US-Iran tensions and signals of US Fed interest rate hikes. Fundamentals side, the ore shortage is not expected to ease in July, yet large-scale production cuts at smelters remain unseen. The export window has not yet fully opened, with exports still awaiting opportunities. Meanwhile, consumption is expected to gradually weaken, and refined zinc supply remains robust. However, spot transactions improved somewhat after the zinc price decline and expectations for smelter production cuts limit the downside room for zinc prices, which are expected to edge down from June levels, but only to a limited extent.