In the first half of December, zinc prices gradually rose. The tightening supply of zinc ore led to a rapid decline in processing fees, and supported by the tight supply of zinc concentrate, the price of the main Shanghai zinc futures contract rose to a high of 23,730 RMB/ton, while LME zinc futures prices reached a high of $3,220/ton.

The Federal Reserve cut interest rates by 25 basis points in December as expected and launched a short-term Treasury bond purchase program. US inflation is expected to peak in the first quarter of next year, and the US dollar index is trending weaker, which is generally slightly positive for zinc prices. The Bank of Japan is highly likely to raise interest rates this week, which could trigger changes in market sentiment. On Friday night, the prices of silver, copper, and aluminum futures, which had seen significant gains previously, fell from their highs, weighing on zinc prices.

Zinc ore processing fees have fallen to a low level

According to relevant data, from January to September this year, the cumulative global zinc ore production reached 9.361 million tons, an increase of 60,000 tons, representing a year-on-year growth of 7.5%. In November, China's zinc concentrate production was 311,400 tons, a decrease of 19,400 tons compared to October, but a year-on-year increase of 5.2%; from January to November, the cumulative production was 3.369 million tons, a decrease of 10,000 tons year-on-year, representing a decline of 1.7%.

Recently, some mines in northern China have entered a winter production reduction phase, leading to a continued tightening of domestic zinc ore supply. On the import side, China imported 341,000 tons of zinc ore in October, a significant decrease of 32.5% compared to the previous month, but a year-on-year increase of 3.3%. Due to unfavorable price comparisons between domestic and international markets, zinc ore imports were largely unprofitable, resulting in reduced import volumes. The main sources of imports were Peru, Australia, and Russia. From January to October, China's cumulative zinc ore imports reached 4.3489 million tons, a year-on-year increase of 37.3%.

Since November, smelters have had a strong demand for raw materials, leading to intense competition for domestically produced ore, and a rapid decline in zinc ore processing fees. As of last week, domestic zinc ore processing fees had fallen to 1,600 RMB/metal ton. Meanwhile, import ore processing fees also declined, falling to $50.56/dry ton. Considering that domestic ore production is in its seasonal off-season, the overall supply of ore is expected to remain tight until the first quarter of next year. As of the end of November, smelter raw material inventories had fallen to 377,000 metal tons, with an inventory availability of 20.8 days, a significant decrease compared to previous months; last week, zinc ore inventories at major ports were 312,000 tons, a decrease from mid-September, but still at a moderate level.

Domestic smelters have slightly reduced production

In September, global refined zinc production totaled 1.195 million tons, a slight decrease compared to the previous month, resulting in a monthly supply surplus of 20,000 tons. From January to September, cumulative global refined zinc production reached 10.29 million tons, showing little change year-on-year. Related data shows that in November, China's refined zinc production was 595,200 tons, a decrease of 22,000 tons compared to the previous month, but a year-on-year increase of 16.7%. From January to November, China's cumulative refined zinc production reached 6.2816 million tons, an increase of 607,000 tons year-on-year, representing a growth rate of 10.7%.

Due to the rapid decline in zinc concentrate processing fees, smelters are facing significantly increased production pressure. Since December, some smelters have reduced production, and coupled with some routine maintenance, it is expected that China's refined zinc output will continue to decline. Currently, the theoretical production loss for smelters is close to 2,000 RMB/ton. However, the price of the byproduct sulfuric acid remains strong, and smelters are striving to improve overall profitability, which may lead to small-scale production cuts overall.

Inventory continued to decline

Domestic zinc ingot inventories are showing a continuous downward trend. As of December 15th, social inventories of zinc ingots in Shanghai, Guangdong, and Tianjin totaled 125,700 tons, a decrease of 20,000 tons compared to the end of November. Total zinc inventories on the Shanghai Futures Exchange have decreased from nearly 110,000 tons in mid-October to 81,000 tons last week, with warehouse receipts falling to 51,000 tons. Spot supply is gradually tightening, with the premium in the Shanghai region rising to around 70 RMB/ton, while the discount in the Guangdong and Tianjin regions has narrowed to around 10 RMB/ton.

After falling to an absolute low in October, LME zinc inventories have recently shown a slight rebound, with total inventories at 64,500 tons and registered warrants at 60,000 tons. Overall, inventories remain low, and the overseas market is still experiencing tight supply.

In the first two weeks of December, the operating rate of galvanized steel enterprises slightly increased. Demand for galvanized greenhouse pipes and square tubes in southern China was relatively strong, as some end-use projects entered the year-end rush phase, driving up orders for galvanized pipes. Regarding galvanized structural components, both power transmission tower and export infrastructure orders showed signs of recovery. The operating rate of zinc alloy casting enterprises slightly weakened; affected by rising zinc prices, some enterprises slightly reduced production, and downstream hardware orders were weak.

On the macroeconomic front, the Federal Reserve's interest rate cut has been implemented, and this week's Bank of Japan meeting and fluctuations in the US stock market may affect market risk appetite. In November, some domestic economic data showed pressure, but policy expectations remained positive. Some mines in northern China entered their production reduction season, and the tight supply of zinc ore continued. Processing enterprises maintained resilient operating rates, but end-user demand appeared slightly weak.

Overall, supply is tightening marginally, strengthening the support for zinc prices. In the short term, attention should be paid to external pressures.

As an integrated internet platform providing benchmark prices, on December 24th, the benchmark price of zinc according to SunSirs was 23,070.00 RMB/ton, an increase of 3.19% compared to the beginning of the month (22,356.00 RMB/ton).

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