How is the End-User Market Performing Recently amid Zinc Oxide Raw Material Shortage? [SMM Analysis]

The zinc oxide industry has recently been affected by a shortage of raw material supply, leading to rising production costs. How are orders performing? According to the SMM survey, the largest segment, rubber-grade zinc oxide, has shown a slight decline. Ceramic-grade zinc oxide continues last year's trend, feed-grade zinc oxide shows signs of recovery, while electronic-grade and battery-grade zinc oxide are steadily increasing. Other chemical-grade zinc oxide remains relatively stable. The specific situation is as follows:

Rubber-grade

The largest consumption market for rubber-grade zinc oxide is tires. Recently, the production of both all-steel and semi-steel tires has slightly decreased. For all-steel tires, the main reason is the weakened transportation, leading to reduced demand and high inventory levels. Companies are mainly consuming finished product inventories, reducing the demand for raw material production. For semi-steel tires, the main reason is the cooling of the automobile market, leading to a slight decrease in operating rates and a reduction in zinc oxide orders. Together with the intense competition in the rubber market and shrinking profit margins, it is expected that rubber-grade zinc oxide orders may slightly decrease in the future, causing a decline in operating rates for related companies.

Ceramic-grade

The largest consumption market for ceramic-grade zinc oxide is the real estate market. At the beginning of this year, the real estate market continued last year's trend of a slow start, leading to delayed operations for related companies. Even after resuming production, the operating rates remained relatively weak. However, by mid-May, the government has been vigorously promoting the real estate market, with local governments issuing policies to boost real estate and banks adjusting mortgage rates to fully promote the recovery of the real estate industry. The renovation of old communities has also been added to the process, providing some confidence to the downstream market. After a two-month transmission period, ceramic-grade zinc oxide orders may improve.

Feed-grade

Feed-grade zinc oxide is mainly active zinc oxide, primarily sold for piglet feed. Since Q1 2023, the breeding sow inventory has decreased for five consecutive quarters. Due to capacity reduction, the number of pigs slaughtered in Q1 decreased. In Q1, the number of pigs slaughtered nationwide was 194.55 million, down 4.43 million YoY, a decrease of 2.2%. Pork production was 15.83 million mt, down 70,000 mt YoY, a decrease of 0.4%. At the end of Q1, the national pig inventory was 408.5 million, down 22.44 million YoY, a decrease of 5.2%, and down 25.72 million MoM, a decrease of 5.9%. Among them, the breeding sow inventory was 39.92 million, down 3.14 million YoY, a decrease of 7.3%, and down 1.5 million MoM, a decrease of 3.6%. Recently, pig prices have rebounded, pig farming is gradually resuming, and piglet farming in south China is gradually recovering. After May, feed-grade zinc oxide orders have slightly increased compared to the beginning of the year. (Note: Data source: NBS)

Electronic-grade and Battery-grade

The market for electronic-grade and battery-grade zinc oxide is steadily increasing due to technological advancements and the iteration of electronic products, such as varistors, thermistors, and batteries. The zinc oxide market is also continuously developing, with recent orders showing a steady increase and a favorable market environment.

In summary, there is still room in the zinc oxide order market. However, the recent rise in zinc prices has led to some end-users being cautious, resulting in a slight decrease in order volume. Finished product inventories of zinc oxide companies have increased. If zinc prices remain high for a long time and raw material shortages are not eased, the operating rates of zinc oxide companies may see a significant decline. SMM will continue to pay attention.