Zinc Ingot Export Window Remained Open; How Will Zinc Prices Move in August? [SMM Analysis]

SMM News, August 17:

       As of July 31, the most-traded SHFE zinc contract closed at 24,800 yuan/mt, up 190 yuan/mt for the month, a gain of 0.77%. Zinc prices fluctuated at highs in July, dipping to 24,070 yuan/mt in early July and touching a high of 25,035 yuan/mt at month-end, with overall zinc prices stabilizing at highs. Since July, the export window for zinc ingot has reopened, and the window continued through August. In the first half of the month, the price center of zinc moved up MoM—how will it perform going forward?

       Macro. Recently, the market has remained focused on the US-Iran situation and the US Fed’s interest rate hike path, with macro sentiment in July mixed between bulls and bears. Entering August, geopolitical conflicts in the Middle East have repeatedly flared up, while US July ADP, nonfarm payrolls, and CPI data came in below market expectations. Expectations for US Fed interest rate hikes cooled, the US dollar index retreated from highs, and base metals were supported and showed strong performance.

       Supply side. In August, zinc concentrate TCs continued to decline MoM, with SMM China domestic zinc concentrate TCs falling to -1,550 yuan/mt Zn, again setting a record low. However, supported by profits from by-products such as sulphuric acid and metal-rich by-products, and as maintenance at some smelters gradually ended and operations resumed, SMM expects refined zinc production to increase MoM in August. Overall, zinc ingot supply still appears relatively strong.

       Demand side. In August, downstream zinc consumption remained in the transition period between the off-season and peak season, with divergent performance across sectors. For galvanized structural parts, the impact of weather weakened, and operating rates are expected to rebound slightly MoM in August; however, operating rates for galvanized sheet continued to decline, dragged down by environmental protection and weaker orders. In addition, zinc oxide is expected to edge up slightly as enterprises that previously underwent maintenance resume production and external disruptions ease. Orders for die-casting zinc alloy remained weak, and operating rates are expected to stabilize at lows. Overall, the recovery in consumption in August was limited, and domestic demand continued to weigh on zinc prices.

       However, it is worth noting that since July, China’s export window for zinc ingot has reopened. According to SMM calculations, spot exports of China’s zinc ingot to Southeast Asia remained profitable in July, and some zinc ingot brands have already been exported to Southeast Asian countries. Entering August, as the SHFE/LME price ratio continued to deteriorate, the export window for China’s zinc ingot to ship to delivery warehouse on the LME also opened accordingly. As of August 14, spot exports of China’s zinc ingot to Southeast Asia yielded a profit of about 845 yuan/mt, while exports to ship to delivery warehouse on the LME yielded a profit of about 380 yuan/mt; the spot and ship-to-delivery-warehouse windows remained open in August. Market sources indicated that in August, some China zinc ingot has already been shipped to delivery warehouse at Hong Kong LME warehouses. Together with continued exports of some zinc ingot to Southeast Asia, China’s domestic zinc ingot inventory has recently seen continued slight destocking. Export expectations, coupled with declining domestic inventory, supported SHFE zinc fluctuating at highs; meanwhile, the backwardation structure in LME zinc continued to widen, LME zinc ingot inventory continued to draw down, and strong performance in LME also provided support to SHFE.

       Overall, from a macro perspective, the market continues to focus on progress in the US-Iran negotiations and economic data from the US Fed. On the fundamentals side, the tightness on the ore side in August has shown no improvement; China’s zinc concentrate TCs have continued to decline, but no significant production cuts have been seen at smelters, and refined zinc supply remains strong. Meanwhile, consumption is expected to gradually weaken. Bullish and bearish factors on the fundamentals side coexist, but expectations for zinc ingot exports, together with ongoing structural risks in the LME structure, continue to provide support. SHFE zinc prices are expected to stay high overall in August, and continued attention should be paid to macro developments and consumption performance.

(The above information is based on market collection and the comprehensive assessment of the SMM research team. The information provided herein is for reference only. This article does not constitute direct advice for investment research decisions. Clients should make decisions prudently and should not use this as a replacement for their own independent judgment. Any decisions made by clients are unrelated to SMM.)