Downside room of SHFE zinc price will be limited

Massive overseas deliveries occurred last week. On top of Citigroup’s deliveries of 65,000 mt, large overseas investors delivered a huge amount of over 68,000 mt to LME warehouses. LME zinc inventory exceeded 210,000 mt, reaching the highest in two years. The contango of LME cash to the three-month contract expanded to 8.1, which directly suppressed the optimism arising from mine production reductions. Growing bearishness lowered zinc prices. Domestic environmental protection inspections once again disturbed the operating rates of downstream producers, propelling some companies to close for around 4 days. Demand thus weakened. According to customs data, 48,000 mt of refined zinc were imported in October, slightly exceeding market expectations. It is expected that more than 40,000 mt of refined zinc will still be imported in November. High domestic supply in the fourth quarter and a large amount of imports increased expectations of market surplus. At the same time, the decline in SHFE zinc prices did not boost spot prices noticeably. On the other hand, enterprises have basically resumed normal production as environmental impact abated. The decline in zinc prices has stimulated a certain amount of downstream replenishment demand, and social inventories have declined. There is still support from the 20,700 yuan/mt mark, and further downside room will be limited.