SMM, January 23: On the morning of January 23, after the market opened, SHFE zinc main contract plunged amid uncertainties surrounding Trump's tariff policies and the downstream zinc sector entering the holiday period. The contract hit an intraday low, dropping nearly 2%. As of 13:45, it closed at 23,690 yuan/mt, down 1.88%.
Overseas, LME zinc also declined. As of around 13:46, LME zinc fell 1.29% to $2,862.5/mt.
In the spot market, according to SMM spot quotes, as of January 23, SMM 0# zinc ingot spot prices dropped to 23,630-23,730 yuan/mt, with an average price of 23,680 yuan/mt, marking a single-day decline of 2.19%.
》Click here for SMM zinc product spot quotes
Regarding the recent decline in zinc prices, SMM believes it is mainly due to macro uncertainties and weak fundamentals of zinc itself. Specifically:
Macro front: On January 21 local time, US President Trump stated that the US government is discussing imposing a 25% tariff on goods exported from China to the US starting February 1. Chinese Foreign Ministry spokesperson Mao Ning reiterated China's stance, emphasizing that trade wars and tariff wars have no winners and that China remains resolute in safeguarding its national interests.
Currently, Trump's tariff policy on China remains uncertain. Some market views suggest it is a negotiation tactic, and the market is awaiting policy details. The US dollar index stayed above 108, putting pressure on base metals.
Fundamentals side:
Supply side:
Recently, with the resumption of a major mine in Hebei, combined with high port inventories, ore supply has further loosened. In negotiations between smelters and mines, mines have gained more bargaining power, leading to continuous increases in TCs. Meanwhile, some traders have raised TC quotes to accelerate shipments. As of January 17, domestic zinc concentrate weekly TCs were reported at 2,000-2,300 yuan/mt (metal content), with an average of 2,150 yuan/mt. For imported zinc concentrate TCs, as of January 17, Zn50 import TC (weekly) rose to -$10 to $10/dmt, averaging $10/dmt.
》Click here for SMM zinc product spot quotes
Recently, data for December 2024 imported zinc concentrates was released. According to customs data, December 2024 imports of zinc concentrates totaled 457,300 mt (physical tons), up 0.31% MoM (1,400 mt) and 3.49% YoY. Looking ahead to January, SMM expects the zinc concentrate import window to remain open, with a noticeable rebound in imported zinc concentrate TCs. Smelters are actively restocking for Q1, and domestic zinc concentrate port arrivals are increasing. Therefore, SMM forecasts January zinc concentrate imports to remain at high levels.
Inventory side:
According to SMM data, as of January 23, total zinc ingot inventory across seven regions monitored by SMM stood at 62,600 mt, up 0.32 mt from January 20. This week, most downstream enterprises have completed their holiday shutdowns, weakening zinc ingot purchasing demand. Inventories increased in Shanghai, Guangdong, and Tianjin.
Demand side:
SMM previously conducted a survey on the Chinese New Year holiday schedules of downstream zinc sectors. Specifically:
Galvanized sheet sector:
According to the SMM survey, the Chinese New Year holiday in galvanising enterprises is expected to impact zinc consumption by approximately 47,002 mt, with an average holiday duration of around 19 days, 2 days shorter than last year. Overall demand in Q4 2024 exceeded expectations, and galvanising orders remained strong into early January. Many enterprises planned high production volumes for January, with some rushing to fulfill export orders, delaying their holiday schedules. However, by mid-January, orders dropped sharply, prompting some enterprises to start their holidays early. After mid-January zinc price declines, some galvanising enterprises engaged in restocking to some extent. Most enterprises are expected to resume operations around mid-February. SMM will continue to monitor the operating conditions of galvanising enterprises. 》Click here for details
Die-casting zinc alloy sector:
According to SMM's communication with enterprises, the sample includes 26 enterprises with a total capacity of 1.0077 million mt/year, impacting zinc consumption by approximately 54,585 mt. Many enterprises planned to start their holidays around January 20. The holiday duration ranged from 8 to 52 days, with an average of 22 days, down 8.4% from last year's 24 days. SMM will continue to monitor the operating conditions of die-casting zinc alloy enterprises. 》Click here for details
Zinc oxide sector:
According to SMM's previous understanding of zinc oxide enterprises' holiday schedules, the sample includes 20 enterprises with a total capacity of 516,800 mt/year, impacting zinc consumption by approximately 6,309 mt. The average holiday duration was 20.1 days, up slightly by 0.1 days from last year. SMM learned that while some zinc oxide plants shut down early due to poor profits, most enterprises maintained similar holiday schedules to last year. Additionally, some plants continued production during the Chinese New Year due to their processes. Overall, the average holiday duration for zinc oxide enterprises showed little change this year. SMM will continue to monitor holiday schedules. 》Click here for details
Looking ahead, considering the continued loose domestic zinc concentrate supply, TCs may rise further. Combined with downstream sectors gradually entering the holiday period, zinc prices face upward pressure. However, pre-holiday inventories at historically low levels provide some support for zinc prices. Currently, macro factors significantly influence zinc prices. The zinc market needs to monitor macro guidance and inventory accumulation. Zinc prices are expected to fluctuate downward in the short term.
Institutional comments:
Jinyuan Futures commented that the US expanded its tariff scope, but the market views it as a negotiation tactic, awaiting policy details. The US dollar hovered around 108. Today, attention will focus on the State Council Information Office press conference and the US initial jobless claims data for last week. Domestically, increased downstream holidays and weak demand dragged down spot premiums. The SHFE/LME price ratio fell, zinc ingot import losses widened, and import impact expectations weakened. However, with the long holiday approaching, risk aversion reduced zinc price volatility. Zinc prices are expected to maintain a fluctuating downward trend before the holiday.
Ruida Futures stated that on the macro front, no significant tariff shocks have occurred in the US. The market's focus has shifted to expectations for US Fed interest rate cuts. Currently, the probability of unchanged rates in Q1 is high, and the US dollar index rose slightly. On the fundamentals side, upstream zinc concentrate imports rebounded significantly, and domestic and overseas zinc concentrate TCs increased. Domestic smelters' production losses narrowed, and refined zinc production is expected to gradually recover. Meanwhile, the import window opened, boosting refined zinc imports and supplementing domestic market supply. On the demand side, downstream sectors entered the off-season. However, expectations for increased government stimulus policies improved demand confidence. Pre-holiday restocking dominated the market, with spot premiums remaining high. Zinc prices are expected to fluctuate in the near term. Technically, reduced trading volume and cautious sentiment among bulls and bears were observed, with attention on the MA10 level. Operationally, a wait-and-see approach is recommended.
Yongan Futures stated that zinc prices fluctuated widely this week. On the supply side, domestic and overseas TCs rebounded rapidly this week, with import TCs rising by $10/dmt, improving smelting profits. November overseas ore imports increased MoM, and December overseas ingot imports also arrived at ports. Domestic smelters' December production is expected to increase by over 10,000 mt MoM. On the demand side, operating rates for galvanising and zinc oxide sectors declined, while downstream restocking occurred. Overseas spot premiums/discounts fell by about 10%, and demand weakened. Domestic social inventories saw a slight drawdown, while overseas inventories declined from high levels. Looking ahead, the continued recovery of TCs and the open import window suggest a loose supply outlook. However, social inventories remain at low levels, and tight spot supply sentiment may emerge. In the medium to short term, a wait-and-see approach is recommended, focusing on potential changes in the spot market driven by macro sentiment. In the long term, the outlook remains bearish.
