Analysis: Zinc inventory set to grow on high prices

SHANGHAI, Dec 29 (SMM) – Zinc inventory in Shanghai, Tianjin and Guangdong stood at 130,500 mt as of December 22, down over 38% from this time last year due to falling supply, according to SMM statistics. However, things are likely to change following surging imports and higher zinc prices.

Since the start of 2017, many small and medium-sized zinc mines in China were forced to shut down due to stricter environmental inspections. Zinc prices, on the other hand, started to move lower following a surge at the end of 2016.

Shorter supply of zinc ore and lower zinc prices have led smelters to go on maintenance, but downstream demand was rather stable. Inventories in Shanghai, Tianjin and Guangdong have since come down for 13 consecutive weeks and hit 129,000 mt at the end of May.

Zinc prices then started to respond to tight supply and rebounded, while smelters also started to resume normal production. However, as zinc ore remained limited, smelters were unable to over produce. This led the zinc inventory be stable at around 100,000 mt.

Going forward, we expect zinc inventory to recover as zinc prices remain high and imports increased dramatically in November. In addition, the 100,000-mt-level inventory is rather unsustainable given consistent downstream demand.  

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