[SMM Analysis] Zinc prices are rising strongly, but we should be on guard against the risks brought by the price increases.

SMM5 March 10:

After May Day this week, Shanghai zinc rose unilaterally, during which the main force 2007 contract broke through the ten thousand seven mark, closing at 16940 yuan / ton as of Friday, up 620 yuan / ton, up 3.80%. And this round of rising market accompanied by 37000 hands of positions, long positions led to a strong rise.

Judging from the epidemic situation, as of 16:32 on 9 May, the cumulative number of confirmed troops worldwide reached 4004224 and the number of deaths was 277860. At present, the development stage of the epidemic situation in various countries in the world is different, and the epidemic situation in China and South Korea has been controlled and has fully entered the stage of resumption of work and production, while Europe, the United States and Japan all entered the inflection point in April, but there is a long tail effect. It is expected that it will take at least one month to get under control, and some European and American countries have also issued economic recovery plans one after another, and the blockade will be relaxed one after another in May. The epidemic situation in the United States and the United Kingdom has not yet seen an obvious inflection point, and new cases are fluctuating at a high level. It is estimated that it will take at least two months to basically control the epidemic, among which the economic recovery in the United States is still full of uncertainties. At this stage, more than 40 states have relaxed the blockade. While the epidemic in India, Brazil and Russia continues to worsen and has not yet reached the inflection point, the epidemic is expected to last for a long time, and it is still necessary to pay attention to the trend of the epidemic in developing countries in the future, which may become the hardest hit areas. Among many countries, Peru, which has the greatest impact on mines, has once again extended its state of emergency until May 24, and according to SMM, some of the Peruvian mining enterprises have applied to the location for recovery, but the recovery is more difficult, and the impact of the mine is still not optimistic.

The rally is mainly due to the long response to the increase in positions to drive prices out of the unilateral market, the market is expected to be the most difficult period from May to June will be the most difficult period of domestic imports of mines superimposed overseas one after another to resume production plans, boosting market sentiment. In terms of zinc mines, due to the epidemic situation in Peru, Canada, Mexico and other countries, mineral resources have been significantly reduced. Under the influence of the superimposed epidemic situation and crude oil incidents, cargo ships are relatively tight, resulting in a shortage of short-term global mineral supply. Some smelters around the world have a shortage of raw material stocks. If the supply and transportation can not be recovered quickly, it will affect the output of refined zinc. On the domestic side, the zinc price rose sharply and the superposition processing fee was reduced. Calculated by the 90-quartile cost line of mining enterprises, the profits of mining enterprises have recovered considerably at present. According to SMM research, some of the mining enterprises that delayed or reduced shipments in the early stage have better improvement in their willingness to ship at present, or will suppress the zinc price in the future to a certain extent.

As for zinc ingots, SMM China's refined zinc production increased by 13000 tons to 479600 tons in April, an increase of 4.02 percent over the same period last year. In May, due to the narrowing of profits and other problems such as superimposed raw materials, some refineries chose to enter the overhaul ahead of time, and the output of refined zinc is expected to drop by 4500 tons in May compared with the previous month. June will still have an impact on smelters as imports are expected to fall sharply.

To sum up, due to the impact of imported mines in the second quarter, superimposed domestic resumption of production and overseas relaxation of the blockade, the trend of zinc prices will still be on the strong side. However, it is still necessary to be vigilant that due to the recovery of profits, the willingness of domestic mining enterprises to ship goods will improve; and after the rise in zinc prices, the willingness to receive goods downstream will weaken, or lead to the weakening of the extent of social banking, limiting the room for zinc prices to rise.

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