Slowdown in interest rate cuts and weaker-than-expected post-holiday consumption led to a slight decline in SHFE and LME zinc prices

LME zinc prices: At the beginning of March, the optimism about the Fed's interest rate cut had not been fully priced in, and the market increased its bets on the Fed's June rate cut. The US ADP employment in February recorded 140,000. The data rebounded but was still lower than expected. In this scenario, LME zinc prices rebounded. Subsequently, South Korean Young Poong announced a reduction in the output of the Seokpo zinc smelter. The supply of zinc ingots decreased and the market optimism provided support for the upward movement of LME zinc prices. Then the US CPI data in February unexpectedly rebounded, and the monthly and annualised core CPI were both higher than expected. US inflation was still sticky. The market bet on the Fed's interest rate cut to be delayed. LME zinc prices fell slightly. Subsequently, US new home sales in February unexpectedly fell month-on-month. The poor data suppressed LME zinc prices. The increase in US durable goods orders in February exceeded expectations. The economic data performed strongly, and consumer confidence in March was lower than expected. The US economic growth outlook in the first quarter remained optimistic. In addition, the cautious view on Fed's rate cuts resurfaced, and LME zinc prices continued to decline. During the month, LME zinc prices first rose and then fell, and the average price declined.

SHFE zinc prices: At the beginning of March, TCs of zinc concentrate fell again, and the shortage of domestic ores continued to support the zinc price. China's Caixin Services PMI in February was 52.5, which was in the expansion range for 14 consecutive months. These, combined with the favourable domestic macroeconomic news around the Two Sessions, continuously boosted the trend of SHFE zinc prices. However, domestic downstream consumption was poor in March, and the poor demand for zinc ingots weakened the support for zinc prices. SHFE zinc prices dropped. Subsequently, the People's Bank of China (PBOC) stated that there was still room for reserve requirement ratio cuts, and SHFE zinc prices pulled up again to claw back the decline. However, the domestic destocking did not occur, and spot consumption continued to be poor, undermining market confidence. SHFE zinc prices fell with LME zinc. At the end of the month, the National Bureau of Statistics announced that the total profit of large-scale industrial enterprises in China from January to February was 914.06 billion yuan, a year-on-year increase of 10.2%. The data showed that China's economy has stabilised, thus market confidence has recovered. SHFE zinc prices rebounded slightly. During the month, SHFE zinc prices rose before falling.

China’s spot markets: Spot premiums moved at lows across China’s major three zinc markets in March. Spot cargoes mostly traded with discounts. Premiums in Shanghai were relatively strong. While the inventory in Shanghai continued to increase in March, the increase was mainly driven by imported zinc ingots. Arriving shipments of domestic zinc were relatively stable, and traders were holding prices firm, limiting the decline in premiums; premium fell significantly in Tianjin. Most of the downstream consumption in Tianjin was contributed by galvanising plants. The operating rates of galvanised products production were weak due to the decline in ferrous metals prices. Some downstream companies postponed the delivery of long-term orders in February to March. The sluggish shipments lowered spot premiums noticeably. As April approached, the premiums in Guangdong were relatively strong. The delivery structure of some smelters in Guangdong has changed, resulting in less shipments arrivals. Meanwhile, the high transportation costs in Yunnan have hampered the arrivals of cargoes. These resulted in less available cargoes in the market and relatively strong premiums; in April, Shanghai's inventory continued to be high due to the impact of imported zinc ingots. This, coupled with the high zinc price, kept downstream companies purchasing cautiously, leading to weak premiums; in Tianjin, with the improvement of ferrous metals prices and the weakening of environmental protection impact, consumption may improve, and the premiums may stop falling and recover.