High Zinc Prices were Favoured by Funds, To View Zinc Prices with Optimistic Expectations

SHANGHAI, Apr 18(SMM) - For LME zinc, the prices hovered at a high level in the overseas market. Under the background of high energy prices and the smelters in Europe failing to resume the production, Trafigura Group has picked up large-scale zinc stocks from warehouses of LME to make up for the company's supply gap due to production cuts at smelters in Europe, resulting in a reduction of 26,325 mt of LME inventory entering April. The rapid de-stocking has made the market worried. This is not the first large-scale de-stocking of LME inventory. At the end of December in 2021, continuous decline in stocks has occurred in Southeast Asia, and the stocks have eased the shortage in the spot market of Europe. The spot premiums fell from $635/mt to $380/mt (take Italy as example) in Europe at that time, but were still at a high level. The current shortage of spot caused by the production cut in Europe was still not over and if the resumption of production delays, the inventory of zinc ingot in Southeast Asia may need to be transferred to other markets again, possibly resulting in continuous decline in LME stocks. LME zinc prices are expected move between $4,300-4,700/mt with potential upward trend.

For SHFE zinc, the overseas fundamentals have affected the supply and demand in China. On the supply side, domestic smelters refused to purchase imported ore due to import losses, intensifying the shortage of ores. Inventory of raw materials at smelters hit a low of 19.85 days, while output of China's refined zinc from March to April was less than expected, and the shortage of ore has influenced the smelters, which was also a result of the transport restrictions caused by the pandemic. The consumption was still quite weak because of the pandemic. However, the lower SHFE/LME price ratio presented opportunities for exports. As the lockdown has been lifted in Tianjin and other cities, there have been shipments for exports. If ocean-going vessels are ready in the future, we could see considerable export volume to compensate for the weak domestic consumption. In general, LME zinc still outperforms SHFE zinc, while the domestic supply and demand are in an upward trend. In the short term, zinc will be the most sought-after metal for longs and zinc prices are expected to move between 27,500-29,500 yuan/mt.