Recently, zinc prices have been dominated by macro sentiment. The US Fed's non-farm payrolls data far exceeded expectations, US bond yields soared, and the Fed's rate cut expectations for September were postponed. The COMEX copper short squeeze eased, and the PBOC's suspension of gold purchase policy cooled down precious metals. The overall sentiment of non-ferrous metals weakened, leading to a weak decline in zinc prices.
From a fundamental perspective, the story of tight supply of ore has not yet eased. Domestic TC hit a new historical low of 2,500 yuan/mt with metal content, and imported TC was lowered to around $20/dmt. In May, the days of raw material inventories at domestic smelters had dropped to below 17 days. The YoY decline in imported zinc concentrate from January to April was 23.6%. Although the import window for zinc concentrate is currently open, and the inflow of imported ore may increase in the future, considering the lack of incremental overseas ores and the resumption of production at European smelters, the increase in inflows to the domestic market is expected to be limited. Additionally, the issue of raw ore dilution in north China limits the increase in domestic zinc concentrate, and some smelters have already been affected by insufficient raw materials and low TCs, impacting production. It is expected that the smelter production in June will decrease by 9,300 mt MoM to 526,900 mt. Tight ore supply affecting smelter production and the increase in imported zinc ingot inflows need to be continuously monitored. The traditional off-season for zinc has set in. Except for ultra-high voltage steel towers, the boost from new energy sector to zinc consumption is limited. With the decline in ferrous metals prices, galvanised pipes orders have slightly declined. However, the decline in zinc prices has also stimulated some end-users to restock. With the frequent favourable domestic policies, consumption may improve in the foreseeable future. Domestic inventory has already dropped to below 200,000 mt, and demand in the off-season in Q3 may not be as weak as expected. Overall, macro factors dominate zinc prices, with little change in fundamentals. Considering the poor macro sentiment, zinc prices are expected to fluctuate weakly in June, but the decline space is limited.
