Zinc prices fell before rising amid CNY holiday and changes in overseas macroeconomic sentiment

LME zinc prices: At the beginning of February, Federal Reserve official Powell’s hawkish speech depressed market expectations over interest rate cuts. The United States ISM Services PMI was higher than expected in January and rose to 53.4. Strong economic data strengthened the market's view that the Fed has not yet declared victory over inflation. In this scenario, LME zinc prices fell sharply; then LME zinc stocks increased significantly during the Chinese New Year holiday, rising to a nearly three-year high. High inventory pressure caused LME zinc prices to fall below the $2,300/mt mark. The expected recovery in China’s consumption after CNY drove LME zinc prices to rebound and claw back losses. The U.S. January PPI data exceeded expectations and rose 0.3% month-on-month, and the Federal Reserve meeting minutes once again weakened the Fed's interest rate cut expectations. Gains in LME zinc prices thus slowed and prices then consolidated at lows. However, the U.S. Dallas Fed business activity index in February was higher than expected and recorded -11.3, sending LME zinc prices rising further. The slight decline in LME zinc inventories also bolstered zinc prices. LME zinc prices first fell and then rose, clawing back the previous declines.

SHFE zinc prices: At the beginning of the month, closures at an increasing number of downstream producers weakened the demand for zinc ingots. Poor spot consumption, combined with the drag from LME zinc market, drove SHFE zinc prices to fall sharply; subsequently, the profit margins of smelters were affected by the fall in zinc prices, and the decline of SHFE zinc prices was temporarily suspended under cost support; SHFE zinc trading was suspended during the CNY; SMM data showed that zinc ingot inventory in seven regions in China accumulated sharply during the CNY holiday to 60,700 mt, the highest level in five years. SHFE zinc prices opened lower and continued to decline, bottoming out at around 20,100 yuan/mt; with the recovery of demand after downstream production resumption as well as favourable domestic macroeconomic environment, SHFE zinc prices rebounded; subsequently, China announced policy supports for home appliances and automobiles to boost consumption. SMM zinc concentrate TCs were lowered again in March. The ore shortage situation supported zinc prices. These factors bolstered zinc prices to continue to rise. During the month, SHFE zinc prices fell before rising, but the contract failed to recover all the previous decline.

China’s spot markets: In February, the spot premiums in the three major markets were generally weak, with a fluctuation less than 100 yuan/mt. The CNY holiday muted trading. Downstream companies basically closed for holidays at the beginning of the month, and they mainly stocked up on cargoes at lows. Spot quotes in various places dropped significantly post-CNY holiday amid the remarkable accumulation of inventories during the holidays and poor trading. In March, premiums in Guangdong and Shanghai improved. Traders delivered cargoes to warehouses due to low spot premiums. Meanwhile, production reductions at smelters in various places resulted in lower-than-expected output. In this scenario, prices were raised. But consumption has not yet fully recovered, and is much lower than year-ago levels. The inventory is still high. As such, spot premiums are unlikely to improve significantly; spot quotes in Tianjin are still weak. Operating rates at galvanising plants were low amid falling steel prices. Meanwhile, shipments were sluggish due to environmental concerns during the "Two Sessions”. Spot premiums may rise slightly in the near term, but can remain low if consumption does not improve.