As the futures contract delivery approaches in Guangdong, how will the zinc premium/discount trend? [SMM Analysis]

Currently, Guangdong is nearing the delivery of the front-month futures contract, and the contract will switch to the 2412 contract. According to recent SMM research, the premium/discount in Guangdong has been declining since the last futures contract delivery. So, how will the premium/discount in Guangdong develop in the future?

Fundamentals side, supply side, according to the latest SMM research, the production of Qilin, Mengzi, Danxia, Feilong, and Lantian zinc in the Guangdong market is relatively stable. Many enterprises have gradually recovered from previous maintenance, and the actual arrival and circulation of zinc ingots from various brands are also normal. As of October 15, zinc ingot inventory in Guangdong recorded 24,700 mt, slightly increasing from the previous day. The arrival of zinc ingots in Guangdong during the week led to an increase in inventory, which to some extent suppressed the rise in premiums.

Demand side, downstream consumption in Guangdong has not shown significant improvement. In September, the operating rate of die-casting zinc alloy was 49.06%, increasing WoW. In October, the operating rate of die-casting zinc alloy enterprises is expected to record 47.67%, expected to decrease MoM. For example, many enterprises reported that the recent rise in zinc prices has led to strong downstream caution, with weak end-use demand. Many enterprises produced in large quantities before the holiday to stock up, but downstream consumption did not meet expectations, resulting in inventory buildup. Many enterprises have recently reduced production progress to consume finished product inventories. In terms of actual orders, there was a slight reduction in orders across various sectors, including real estate, automotive, hardware, and luggage, with bathroom, luggage zippers, and export orders being particularly noticeable, indicating weak demand-side consumption.

Price side, current futures prices are relatively high, and zinc prices may continue to fluctuate at highs in the short term. With prices at absolute highs, downstream demand shows no significant increase, and enterprises are cautious in procurement, mainly purchasing based on immediate needs, which also causes the premium/discount in Guangdong to continue to decline. In summary, with the fundamentals side showing downstream caution and weak demand unable to consume the increased inventory, and without significant domestic and international macro changes in the short term, zinc prices are expected to remain fluctuating at highs. Therefore, the premium/discount in Guangdong is likely to maintain a downward trend.