SHANGHAI, Oct 15 (SMM) -
Zinc TCs likely to fall in Q4
According to SMM research, domestic monthly output of zinc concentrate continued to rise since March, 2021. The TCs for imported ore led the downward correction since late August, and the TCs for domestic ore fell since end of September. The current supply of ore was still tight even the smelting capacity has been constrained by the power rationing. The TCs are likely to drop further in Q4.
Domestic zinc ore inventory fell slightly
The cumulative imports of zinc ore in 2021 fell from the previous year, mainly caused by close of import window, the fierce competition in Asia and global transport disruptions. The current imports are mainly delivered to the smelters, with almost zero imports by the traders or small orders.
The fall in the ore output in 2020 was mainly caused by the falling grade of zinc ore\
The output of zinc ore in 2020 fell due to the COVID-19 pandemic, the wet season, the environmental protection inspection, and the falling grade of zinc ore, with the last factor being the major cause.
New zinc ore projects in 2021 are mostly located in overseas market
According to SMM research, most of the new zinc ore projects in 2021 are located overseas, and the global zinc concentrate output is likely to increase by 250,000 mt in metal content. While the added concentrate output in China is likely to total 203,000 mt in 2021 based on the expansion projects in 2019-2021. The mines in Xiangxi, Hunan will mostly resume the production by the end of the year.
The demand side
The galvanising companies suffered losses
The producers of galvanised structural parts have suffered from losses in 2021 amid surging raw materials and the terminal sector’s refusal to high prices. While the profits of the galvanised sheet producers have been comparatively sound, but have been shrinking lately. The galvanising demand is likely to be subdued in the seasonal high. The market shall watch the upcoming heating season in north China, the power rationing and the environmental protection requirements.
The finished product inventory of galvanising companies has stayed high
The finished product inventor of galvanising companies has stayed high since the beginning of the year, and some producers have to lower their operating rates. SMM research shows that the combined new capacity in 2020-2022 is likely to be 15.78 million mt.
Export orders have been sluggish
The operating rates of the die-casting zinc alloy enterprise in the first half of the year have been better than last year. However, the current export orders have been sluggish amid sea transport disruption, and the number of orders ahead of the traditional Christmas did not see much improvement.
In the long run, the inventory in Guangdong has a strong negative correlation with the die-casting operating rates. In the second half of this year, due to power cuts in Guangxi and Yunnan, the inventory of zinc ingots in Guangdong was low. Currently, as the smelters resume the production, the inventory in Guangdong is gradually picking up. According to SMM's recent research, the die-casting enterprises' operating rates have declined by end of September, and the finished product inventories have shrunk compared to the past.
The demand and supply are both weak in the second half of the year
The supply and demand of zinc ingots have played a greater role in determining the value of zinc prices in 2021.
Based on SMM survey, the social inventory of zinc ingots rose slightly after the released government reserves entered the downstream warehouses.
The released government reserves have served as a supplement to market supply. The overseas prices may outperform that in China market as the China government will continued to release the government reserves in the second half of the year.
Currently, the domestic supply and demand have been both weak. The power rationing against the smelters are mostly found in Yunnan, Guangxi and Hunan, and some of the smelters have suspended production before the National Day holiday. As for the downstream sector, more industry players have been affected by the power rationing, mainly in Guangdong, Jiangsu, Tianjin and Hebei. But the influence has been varied, and needs to be measured according to the zinc ingot inventory.
The social inventory of zinc ingots stood at 133,800 mt after the National Day holiday, an increase of 14,000 mt, which fell short of expectation. The current inventory has been at a historical low, underpinning zinc prices.
SMM believes that the zinc prices will stay firm in the short to mid-term. And the prices are likely to climb again if the production reduces again as the global energy crisis intensifies.
