Zinc prices will still run at high levels in the short term

Zinc prices have been strong in March. Overseas, South Korea's Seokpo zinc smelter with an annual output of 400,000 mt has reduced production by one-fifth, further tightening supply. Market sentiment was boosted by this. The contango of LME cash to the three-month contract fell to $37/mt. LME zinc inventories have continued to decline. Domestically, Yunnan Luoping Zinc & Electricity Co. announced that Fule lead-zinc mine had suspended production due to production safety license issue, exacerbating the shortage of ore. Raw material inventories at smelters, including those at ports and in plants, were still tight. An increased number of smelters undertook maintenance and reduced production amid losses. According to SMM survey data, China’s refined zinc output in February was 502,500 mt, a month-on-month decrease of 64,400 mt. In March, domestic refined zinc production is expected to increase by 5,300 mt month-on-month to 507,900 mt, which is lower than expected. There will be no major increase in production in April. As domestic consumption recovered, operating rates rose across galvanising, die-casting zinc alloy and zinc oxide plants. Nonetheless, with the opening of the import window, imported zinc ingots are expected to increase by around 25,000 mt in March, which may make up for part of the supply reduction.

Zinc prices will still run at high levels in the short term, but the upside space may be limited. It is recommended to operate with caution above 21,000 yuan/mt.