Supply and demand two light zinc market is near strong far weak pattern

Last week, the main contract of Shanghai Zinc broke through 21,600 yuan/ton, and the main contract of London zinc approached 2,850 DOLLARS/ton. After a week of high oscillation, the zinc price still has the potential to rise.

On the one hand, the high adjustment form of internal and external zinc prices is stable.

On the other hand, from the perspective of fundamental supply and demand, the domestic zinc market has strong certainty of tradable expectations.

Concentrate processing charges across the board

Antaike lead-zinc convention for entirely by zinc prices themselves to judge the focus of zinc concentrate processing, undisturbed by the outbreak, 2020 foreign zinc concentrate output decline.

 ILZSG annual expected, for example: the agency predicted last October in 2020 the global supply of zinc concentrate rose 4.7% to 13.64 million tons, annual output and the newest concentrate has been changed to negative 4.4%, the loss of 1.33 million tons.Global refined zinc output is expected to grow at an annual rate of 0.9 per cent compared with mines, implying some destocking at mines, smelting, ports and the logistics end of concentrate.

Concentrate inventory demand with zinc smelting capacity to return to work outside of China, the domestic refining capacity raw material had winter will overlap, since September, import ore TC from $150 / doing tons of falling to the current $85 / tons, domestic north and south produced zinc concentrate processing fee also fell to 4350 yuan/ton, 4150 yuan/tons of metal, metal processing overall level fall back to the fourth quarter of the year before last.

Despite the strong rise in zinc price, the price sharing income obtained by the refinery was eroded by the decline in processing fees. The seasonal surge power of domestic zinc smelting capacity was insufficient at the end of the year, interrupting the market's original expectation of the monthly increase of domestic refined zinc supply in the fourth quarter.In October, Domestic refined zinc output was 484,000 tons, up 11,000 tons from the previous month, according to Anteke data. 

In November, it is expected that refined zinc supply will fall by 4,000 tons month-on-month due to the slight reduction of production plans by individual refineries in Yunnan and Shaanxi. Production in December may still weaken.In addition, research shows that part of Zhuzhou smelter production capacity scheduled on December 10 maintenance, Wenshan zinc indium maintenance in early December, Cloud copper and zinc industry, Sichuan Hongda also arranged a maintenance plan in the first quarter of next year.In December and January of next year, the probability of shrinkage of domestic refined zinc output is large.

Winter stocks are more difficult to accumulate

Different from the expected contraction of the supply side, the market is actively adjusting the perception of the winter zinc market consumption off-season.At present, the overall domestic macroeconomic indicators, industrial added value and output of terminal products continue to warm, the third wave of overseas epidemic continues to drive the export orders of domestic manufacturing products, coating plate, die cast zinc alloy and zinc oxide and other intermediate products output remains stable in the weekly survey level.

At the same time, after the northern winter, local haze, rain and snow weather only temporarily affected the start of the rhythm, the overall zinc market consumption toughness.Especially in the middle of The Lunar New Year in February, the expected difference between supply and demand in the East and the West caused by the epidemic means that the output in the middle and lower reaches of China is likely to remain strong throughout December and early January of next year, and the consumption of zinc is more likely to exceed expectations, which is not weak in the off-season.In previous years, after the middle and late December, the smelters and traders have cleared the inventory obviously, and there is a pressure on the spot, and there will be a certain amount of accumulation of social inventory, but at present we think it is more difficult to accumulate the inventory in winter.

At the end of the year, the supply and demand of zinc market are flourishing, and there are still 100-150 yuan/ton premium for delivery near the 2012 contract.Even if the Spring Festival is approaching, we tend to shift to "weak supply and demand" at both ends of the supply and demand, and it is difficult for the zinc market to show obvious exhaustion, so The Structure of Shanghai zinc will maintain a certain near strong far weak.

ILZSG estimates that the global refined zinc market has a surplus of 620,000 tonnes this year and 463,000 tonnes next year, and that the zinc market will continue its long bear market centered on mine supply.However, the main line of the trading logic of Shanghai zinc market is the expected difference in production and sales of quarterly level.At present, the upstream progress of refined zinc is similar to that of the fourth quarter of 2018 to the first half of 2019, while the market is more optimistic about consumption.At the end of the year, due to the difference in tradable expectations at both ends of supply and demand, zinc prices rose strongly.

At the same time, it is important to note that low processing fees and poor expectations around upstream supply will not end too soon. On the one hand, the Gamsberg mine accident at Vedanta has increased short-term concentrate supply and demand.On the other hand, in the medium term, there is strong uncertainty about the epidemic situation in South America in the first quarter of next year.On the consumer side, the market is generally optimistic about the strong resilience of the domestic macro economy until February and March, and when domestic momentum cools, the strength of the recovery in advanced economies is likely to fill the gap.As a result, the zinc rally points to levels seen in March and April 2019.