Since the start of the year, zinc inventories in Shanghai and London have moved in completely different directions. LME zinc stocks fell continuously, at one point not enough for two days of global consumption, while domestic zinc inventories peaked in mid-March and started reversing earlier than London. As of May 17, LME zinc stocks stood at 105,300 tonnes, up 7,650 tonnes week on week, a fifth consecutive weekly increase. Meantime, SHFE zinc inventories were 68,808 tonnes, down 980 tonnes week on week, the ninth consecutive weekly decline and the lowest since the week of February 1. With exchange inventories both at home and abroad seemingly entering a stable phase, prices still find it hard to avoid falling further.
From a macro perspective, the turbulence stirred by Trump is far from calming down. Although the trade frictions between China-US and US-Europe have had little impact on domestic zinc and related products, and the US has recently delayed tariffs on European cars and the implementation of the Huawei ban, expectations of reduced exports of end products and weaker global trade and economic growth have not changed. Calls for the Fed to turn dovish, stop raising rates and even cut rates are growing louder. Earlier, China's April economic data failed to beat expectations, and the yuan exchange rate came under mounting pressure. Offshore yuan hovered around 6.94, within striking distance of the 7 psychological level. Pan Gongsheng, deputy governor of the central bank and head of the State Administration of Foreign Exchange, said in an interview that he is confident of maintaining the yuan exchange rate at a reasonable and stable level, but the currency is still likely to experience weak and volatile trading.
On the domestic supply-demand front, Huludao's ISP-process lead-zinc production line, which was shut down on April 12, completed maintenance on May 20, affecting about 4,000 tonnes of zinc ingot output. Hunan Zhuzhou Smelter and Huayuan have continued to increase production smoothly, and future zinc ingot supply is set to rise further. The treatment charges that brought handsome profits to smelters early this year have also started to peak and decline as capacity is released. At the same time, the peak consumption season is drawing to a close, and export difficulties have further lowered expectations. According to Shanghai Metals Market, spot market holders have repeatedly attempted to raise premiums intraday recently, but after trades failed to materialize, they quickly cut offers in tandem with the falling market, reflecting a bearish outlook for future zinc prices. Overseas, LME zinc stocks have seen repeated deliveries, with supply also stable, making any coordinated support difficult. Overall, ample zinc ore supply and rising capacity will push the supply-demand structure further toward oversupply. Domestic destocking has been markedly slower than in previous years and may turn into accumulation. With no bullish fundamental factors for zinc, further declines are hard to prevent.
On the price chart, trendline support sits around 20,350 below, while the 1-hour chart continues to show a downward channel. Given macro conditions and supply-demand fundamentals, zinc prices are likely to find support and fluctuate around this level, but a strong rebound is unlikely. Should this support line be broken effectively, it could further dampen sentiment across the industry chain and feed through to capacity and processing margins. In the short term, one can maintain a bearish stance, reducing positions to wait and see once prices stabilize. Strong support lies near 20,100 below, but the overall outlook remains weak. Going forward, continue to monitor macroeconomic data, trade dispute developments, and whether new domestic policies will emerge to alter fundamental demand.