Zinc Prices May Experience Great Volatility in March_SMM |...

Zinc Prices May Experience Great Volatility in March_SMM | Shanghai Non-ferrous Metals

Zinc Prices May Experience Great Volatility in March

Mar 16, 2022 16:06CST

Source: SMM

For the future trend of zinc prices, three factors need to be closely watched in March: 1. supply and demand; 2. European and US sanctions against Russia and Russia's countermeasures amid the ongoing war between Russia and Ukraine; 3. by how much will the US Fed raise its interest rates during the March meeting and the pace of future interest rate hikes.

SHANGHAI, Mar 16 (SMM) - For the future trend of zinc prices, three factors need to be closely watched in March: 1. supply and demand; 2. European and US sanctions against Russia and Russia's countermeasures amid the ongoing war between Russia and Ukraine; 3. by how much will the US Fed raise its interest rates during the March meeting and the pace of future interest rate hikes. Multiple uncertainties will increase the volatility in zinc prices in March.

Since mid-February, the market has focused on the pace of zinc demand recovery. In the context of the year-on-year decrease in domestic apparent supply in February, the actual domestic demand for zinc was barely satisfactory. The zinc ingot social inventory across the seven major markets in China rose to 287,000 mt, hurting market confidence about the recovery of zinc demand. The domestic refined zinc output increased sharply on both MoM and YoY basis entering March. It remains to be seen whether the demand in north China will recover strongly in mid-to-late March. Whether zinc prices can go up further depends on whether the decline in zinc ingot inventory after mid-March is bigger than in the same period last year. The overseas natural gas prices will play an important role in the movement of the SHFE/LME zinc price ratio. If European countries start to increase the use of traditional energy, natural gas prices may pull back, which will encourage European smelters to resume their production. Since March normally marks the start of the traditional peak season in China, the SHFE/LME zinc price ratio may rebound.

The current imbalance of zinc ore supply and demand in China is also worthy of market attention. Due to severe losses on imported zinc ore at the current SHFE/LME zinc price ratio, smelters prefer domestic ore. If the SHFE/LME zinc price ratio does not improve significantly, some smelters may be forced to reduce their production. If ore shortages trigger output cuts, the SHFE/LME zinc price ratio is likely to go up.

Therefore, it is recommended to continue to hold long positions in the SHFE zinc market and short positions in the LME market. SMM is bullish on zinc prices. However, the market also needs to be wary of downside risks, including weaker-than-expected demand recovery, overseas geopolitical conflict, and the possibility that the US Fed may tighten its monetary policy more than expected.

cheers.