Zinc Prices Reached Yearly Highs in November, What's the Outlook for December? [SMM Analysis]

As of November 29, the most-traded SHFE zinc contract closed at 25,200 yuan/mt, down 75 yuan/mt MoM, a decrease of 0.30%. Throughout November, zinc prices fluctuated around 25,000 yuan/mt, with the center slightly lower than the previous month. Prices dipped to 24,330 yuan/mt mid-month and surged to a yearly high of 26,315 yuan/mt at month-end. Overall, zinc prices remained high in November. What about December?

Macro perspective. With the US election settled, the US dollar index surged, exerting continuous pressure on non-ferrous metals. In the first half of the month, SHFE and LME prices declined due to this influence. In the latter half, driven by capital, zinc prices rebounded strongly from their lows, with SHFE and LME zinc prices remaining high and reaching nearly two-year highs at month-end. The market is now watching for more macro-level guidance.

Supply side. In November, SMM China's refined zinc production increased slightly by 1,000 mt MoM, performing better than expected overall. However, the absolute production level remained low. Additionally, the import window for zinc ingots remained closed throughout the month, limiting overall import inflows. Domestic zinc ingot supply remained weak in November. Entering December, with production recovery in multiple regions and annual production increases, overall December production is expected to rebound MoM, potentially improving the low-level zinc ingot supply.

Consumption side. In November, galvanized consumption was strong due to year-end project completions and stable ferrous metals prices. Additionally, die-casting zinc alloy enterprises saw a rebound in orders, with some engaging in "rush exports." Coupled with the earlier Chinese New Year, some pre-holiday stocking orders were released, leading to a slight MoM increase in die-casting performance. The zinc oxide sector remained robust, with strong semi-steel tire operating rates continuously supporting zinc oxide orders. Pre-holiday stocking orders from feed mills also appeared, leading to a MoM increase in zinc oxide operating rates. Overall, downstream zinc performance in November was better-than-expected for the off-season. However, considering weather factors, consumption may decline in December.

Overall, the zinc market in November saw tight supply and strong downstream consumption, supporting high zinc prices. Entering December, with domestic zinc concentrate TCs rebounding and smelter zinc ingot supply potentially increasing, coupled with limited room for further consumption growth, the fundamentals may not support zinc prices as strongly. Continuous attention to subsequent macro-level guidance is needed.