Summary: The global economy is recovering steadily, but with U.S. equities highly valued, markets have become increasingly sensitive. Recently, overseas policy support has weakened, and coupled with rising geopolitical risks, market uncertainty has increased. Zinc prices fell sharply in recent days due to macro headwinds, but stabilized after sentiment was vented. In the short term, zinc prices are expected to extend their rebound.
The global economy is recovering steadily, but with U.S. equities highly valued, markets have become increasingly sensitive. Recently, overseas policy support has weakened, and coupled with rising geopolitical risks, market uncertainty has increased. Zinc prices fell sharply in recent days due to macro headwinds, but stabilized after sentiment was vented. In the short term, zinc prices are expected to extend their rebound.
Import zinc concentrate treatment charges were lowered. The trend of slowly easing zinc concentrate supply remains unchanged. According to research by Mysteel, large lead-zinc mines in both northern and southern China are producing normally. Recently, treatment charges in some domestic regions have been raised, boosting mine production enthusiasm. However, some mines have seen output declines due to lower ore grades. Mines in parts of Hunan are currently shut down for system maintenance, leaving market supply of tradable material still tight. Last week, import zinc concentrate treatment charges continued to fall. Domestic self-produced concentrate treatment charges held steady at the mainstream level of 5,300-5,700 yuan/mt, while mainstream import concentrate quotes continued to decline by $20/dmt to $120-130/dmt, indicating that zinc concentrate supply will continue to loosen slowly in September. Due to the pandemic, overseas zinc mine production still faces some disruptions, and with major traders controlling supply to press prices, spot import concentrate treatment charges have fallen in the short term.
According to partial customs data, China's zinc concentrate imports in July totaled 272,500 physical mt, up 27.85% month-on-month and down 5.93% year-on-year. In the first half of July, arrivals at domestic ports remained low, but began to gradually recover in the second half of the month, so July import volumes only rose mildly. Imports are expected to recover further in August.
Smelter production enthusiasm increases; September supply growth is considerable. With signs that treatment charges have peaked, smelters' willingness to operate has improved, leading to stronger-than-expected output growth in September. August refined zinc production was 509,100 mt, up 3.3% month-on-month and 1.98% year-on-year. Cumulative refined zinc production from January to August was 3.869 million mt, up 3.68% year-on-year. Among this, sample alloy production from domestic refined zinc smelters in August was 78,000 mt, up 3.94% month-on-month. August domestic refined zinc output was higher than the expected level for July, as zinc prices continued to rise, repairing smelter profits. Driven by profits, smelters proactively raised production. In addition, some smelters in Gansu, Hunan, Inner Mongolia and other regions resumed production after maintenance. Entering September, stimulated by high profits, smelters in other regions continued to raise output except for some Gansu smelters undergoing maintenance. Meanwhile, with smelters in Inner Mongolia, Guangdong and Henan resuming production after maintenance, September refined zinc production is expected to increase by 36,900 mt month-on-month to 545,900 mt.
July refined zinc imports fell by over 30%. According to the latest customs data, China imported 44,000 mt of refined zinc in July 2020, down 31.95% month-on-month and 28.8% year-on-year. Exports were 1,700 mt, down 16.25% month-on-month but up 80.5% year-on-year. Net imports of zinc ingots in July were 42,300 mt. From January to July 2020, cumulative imports were 266,800 mt, down 28.8% year-on-year.
The decline in July refined zinc imports mainly came from South Korea, Australia and Japan. According to AlphaMetal's real-time import profit/loss monitoring, the import window remained closed in July, with spot import losses staying at 200-600 yuan/mt. After the concentrated arrival of previously price-locked cargoes, activity in the foreign trade market declined, and imported zinc inflows in July fell noticeably. Also affected by domestic flooding, overall domestic consumption weakened in July, reducing demand for imported zinc ingots.
Domestic consumption is gradually picking up. In North China, galvanized sheet/coil prices are generally weak. State-owned galvanized prices were stable, private galvanized prices fell by 40 yuan/mt, and color-coated prices remained unchanged. On the steel mill side, on the 10th, Baosteel announced its October futures price adjustment: ordinary cold rolled was raised by 200 yuan/mt, and hot-dip galvanized was raised by 200 yuan/mt. Judging from the pricing policy, steel mills have a strong intention to hold prices firm, and merchants' ordering costs continue to rise. According to research, most enterprises in Tianjin affected by environmental rectification have resumed production. Terminal orders in various regions have stabilized, and new orders are expected to land gradually in September, with domestic consumption gradually recovering.
In August, the operating rate of zinc oxide enterprises was 49.08%, up 0.05 percentage points month-on-month and down 1.71 percentage points year-on-year. Initial end-user consumption in August was unremarkable, but the off-season was not weak, and the market remains hopeful for peak-season consumption. According to statistics bureau data, from January to July 2020, national cumulative production of coated sheets was 32.501 million mt, equivalent to about 30.226 million mt of galvanized sheet, up 0.1% year-on-year. July alone saw coated sheet output of 5.31 million mt, up 12.1% year-on-year. From January to July, cumulative net exports of galvanized sheet (strip) were 3.94 million mt, down 15.7% year-on-year. Apparent consumption of galvanized sheet was 26.048 million mt, up 5.0% year-on-year, with the growth rate expanding from the previous month. Looking at terminal production and sales data, demand remains on a recovery trend but with marginal slowdown.
Summary: Recently, zinc concentrate treatment charges have been lowered, domestic zinc concentrate output growth has been limited, overseas pandemic flare-ups continue to disrupt some mine production, and uncertainty over concentrate supply remains for Q4. Domestic refined zinc production in August exceeded market expectations. Driven by high profits, smelters are accelerating production, and September refined zinc output is expected to continue rising month-on-month. On the demand side, infrastructure consumption and export improvements from overseas demand recovery support consumption. Orders from zinc oxide and die-casting alloy downstream sectors have also shown signs of improvement. In the short term, fundamentals remain stable, and zinc prices are likely to fluctuate strongly at high levels.