During the first half of December, zinc prices gradually climbed. Marginal tightening at the mining end led to a rapid decline in zinc ore processing fees. Bolstered by tight zinc concentrate supply, the main Shanghai zinc contract peaked at CNY23,730 per ton, while LME zinc futures reached a high of around 3,220 USD per ton.

The Federal Reserve cut interest rates by 25 basis points as expected in December and launched a short-term Treasury purchase program. With inflation expected to peak in the first quarter of next year and the U.S. dollar index trending weaker, the overall outlook remains slightly bullish for zinc prices. The Bank of Japan is highly likely to raise interest rates this week, which may trigger shifts in market sentiment. During Friday night trading, silver, copper, and aluminum futures—which had seen significant gains earlier—retreated from their highs, exerting downward pressure on zinc prices.

Zinc Concentrate Processing Fees Fall to Low Levels

Data indicates that global zinc concentrate production totaled 9.361 million tons from January to September this year, an increase of 60,000 tons or 7.5% year-on-year. Domestic zinc concentrate output in November reached 311,400 tons, down 19,400 tons from October but up 5.2% year-on-year. Cumulative production from January to November totaled 3.369 million tons, a decrease of 10,000 tons (1.7%) compared to the same period last year.

Recently, some northern mines have entered winter production cuts, tightening domestic ore supply. On the import front, China imported 341,000 metric tons of zinc ore in October, a significant month-on-month drop of 32.5% but a year-on-year increase of 3.3%. With unfavorable domestic-international price differentials and substantial import losses, zinc ore imports contracted, primarily sourced from Peru, Australia, and Russia. Cumulative imports from January to October reached 4.3489 million metric tons, up 37.3% year-on-year.

Following November, smelters have demonstrated strong demand for raw material stockpiling, intensifying competition for domestic ore and driving rapid declines in zinc ore processing fees. As of last week, domestic zinc ore processing fees fell to CNY1,600 per metal ton. Concurrently, imported ore processing fees retreated to 50.56 USD per dry ton. Considering domestic ore is in its seasonal off-peak period, overall ore supply is expected to remain tight until the first quarter of next year. By the end of November, smelter raw material inventories fell to 377,000 metal tons, with inventory days of supply at 20.8 days—a significant decline from previous months. Last week, zinc ore inventories at major ports stood at 312,000 tons, down from mid-September levels, maintaining a moderate overall level.

Domestic smelters slightly reduced production

Global refined zinc output in September reached 1.195 million metric tons, a slight month-on-month decrease, with a monthly supply surplus of 20,000 metric tons. Cumulative production from January to September totaled 10.29 million metric tons, showing little year-on-year change. Data indicates China's refined zinc output in November reached 595,200 metric tons, down 22,000 metric tons month-on-month but up 16.7% year-on-year. Cumulative production from January to November totaled 6.2816 million metric tons, an increase of 607,000 metric tons or 10.7% compared to the same period last year.

With zinc ore processing fees falling rapidly, smelters face significantly increased production pressure. Since December, some smelters have continued to cut output, compounded by routine maintenance. Domestic refined zinc production is expected to decline further. Currently, theoretical production losses for smelters approach CNY2,000 per ton. However, by-product sulfuric acid prices remain strong, prompting smelters to focus on improving overall profitability. Production cuts are likely to be limited in scale.

Inventories Continue to Decline

Domestic zinc ingot inventories show a persistent downward trend. As of December 15, social inventories in Shanghai, Guangdong, Tianjin, and other regions totaled 125,700 tons, down 20,000 tons from late November. Total zinc inventories on the Shanghai Futures Exchange (SHFE) fell from nearly 110,000 tons in mid-October to 81,000 tons last week, with warehouse receipts declining to 51,000 tons. Spot supply tightened gradually, with Shanghai spot premiums rising to around 70 RMB/ton, while Guangdong and Tianjin spot discounts narrowed to approximately 10 RMB/ton.

After hitting an absolute low in October, LME zinc inventories have shown a slight rebound recently. Total inventories stand at 64,500 tons, with registered warehouse receipts at 60,000 tons, maintaining overall low levels. The overseas market remains in a state of tight supply.

During the first two weeks of December, galvanizing plant operating rates saw a slight uptick. Demand for greenhouse pipes and square tubes remained robust in southern China, with some end-user projects entering year-end rush production phases, driving orders for galvanized pipes. For galvanized structural components, both tower construction and export infrastructure orders showed signs of recovery. Zinc alloy foundries saw a slight decline in operating rates. Affected by rising zinc prices, some enterprises reduced production modestly, while downstream hardware orders remained weak.

On the macro front, the Federal Reserve's rate cut has been implemented. This week's Bank of Japan meeting and volatility in U.S. stocks may impact market risk sentiment. Domestic economic data for November faced pressure, but policy expectations remain positive. Some northern mines have entered their seasonal production reduction period, prolonging the tight supply of zinc ore. Processing plants maintained resilient operating rates, while end-user demand showed slight weakness.

Overall, supply-side constraints are intensifying, strengthening downside support for zinc prices. Short-term attention should focus on external pressures.

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