SunSirs: Zinc Market has Three Daily Limits and One Drop Limit

  Zinc prices fluctuated this week, with three daily limits and one lower limit, and the zinc market opened up and closed. As of October 21, the zinc price was 26116.00 yuan/ton, a sharp increase of 10.02% from the 23835 yuan/ton zinc price on October 13. It was up 2.38%, 8.23% on the 18th, 2.09% on the 19th, 6.41% on the 20th, and 2.53% on the 21st. Zinc futures touched the daily limit three times and once touched the daily limit. What is the reason for the zinc price to be so big this week? Where will the market go from here?

  European smelter production cuts triggered skyrocketing and plummeting

  According to foreign news on October 13, Nyrstar said that with the substantial increase in electricity costs and carbon emissions-related costs, it is no longer economically feasible to run the factory at full capacity. It will cut the zinc output of its three European smelters by 50% from the 13th to cope with the soaring electricity costs. Nyrstar belongs to the Trafigura Group and is one of the largest zinc metal producers in the world.

  Following Trafigura Group’s 50% reduction in production, on October 16, Glencore announced that it would reduce the output of its three zinc smelters in Europe, mainly including staggered production of zinc smelters in Germany, Spain, and Italy. Mainly affected by soaring energy costs. Glencore is one of the world’s mining giants. Last year, the company’s zinc production was 1,170,400 tons, accounting for about 9.67% of the world’s total. Glencore joined the ranks of production cuts, and further increased the market’s concern about the tight supply in the zinc market. Zinc prices continued to soar, and futures zinc once again rose to the limit.

  The stock of zinc ingots in the futures market surged.

  On October 19, the stock of zinc ingots in the London LME market was 20,700 tons, and the inventory increased by 14,800 tons, and the percentage of change increased by 7.92%. On October 21, the total zinc inventory on the Shanghai Futures Exchange was 15,836 tons, a sharp increase from 9,410 tons of zinc inventory on the 8th. The zinc ingot inventory in the futures market rose for several consecutive days. The zinc inventory on the 20th day increased by 68.3% from the beginning of the month. The zinc stocks in the future have increased sharply, the supply of zinc stocks in the zinc market is still sufficient, the balance of supply and demand in the zinc market has not been completely broken, and the support of high zinc prices is insufficient.

  Combination of coal power supply to ensure supply and price stabilization strikes out

  According to the WeChat official account of the National Development and Reform Commission, on the afternoon of October 19, the responsible comrades of the National Development and Reform Commission hosted a symposium on ensuring supply and price stabilization for key coal, power, oil and gas transportation companies. The meeting put forward clear requirements for the next step in ensuring supply and price stabilization. Including the promotion of coal-fired power generation units should be exhausted. Consolidate territorial responsibilities and the main responsibility of power companies to ensure supply, strengthen overall resource scheduling, and make every effort to ensure a high proportion of thermal power units start-up and high-load output, and promote hydropower, nuclear power, wind power, photovoltaic and other clean energy generation. Scientifically organize and implement the orderly use of electricity. First, limit the use of electricity for “two highs” projects, especially for high-energy-consuming projects with backward production capacity.

  The National Development and Reform Commission will make full use of all necessary means stipulated in the “Price Law” to study specific measures to intervene in coal prices, promote the return of coal prices to a reasonable range, promote the return of the coal market to rationality, ensure safe and stable supply of energy, and ensure the warmth of the people winter. The state’s macro-control measures have taken measures to ensure the supply of important spot commodities, ensure electricity for production and life, and focus on cracking down on price bidding and hoarding to ensure stable commodity prices. The combination of measures ensured the basic supply of the domestic zinc market and stabilized the relative stability of zinc prices. Zinc futures, which hit the daily limit for three consecutive trading days, fell in response, and zinc futures fell by the high limit.

  There are still factors for soaring electricity bills in Europe

  The European Intercontinental Exchange data shows that compared with the price of about 6 euros in the middle of last year, the price of natural gas has soared more than 10 times recently, and the price has hit a record high. As energy prices have soared, so have European electricity prices. At present, the electricity price per MWh in the UK has risen to 285 pounds, a 700% increase over the same period, setting a record since 1999. Spain’s electricity prices have tripled since last December, and Germany has risen by 50%. The electricity shortage in Europe has not been alleviated, the factors of rising electricity prices are still there, and the long-term upward pressure on the zinc market still exists.

  India’s power crisis worries still remain

  Due to insufficient coal supply, India has become the latest country facing a severe power crisis. According to data from the Indian power sector, as of early October, the average coal inventory of 135 thermal power plants in India was only 4 days, down from 13 days in early August. In the factories monitored daily, more than half of the stocks are less than three days old. The zinc smelting capacity in India accounts for 5% of the global zinc smelting capacity. The electricity crisis in India is still intensifying. It is imperative to reduce the output of zinc smelting in India. The market still has concerns about the future reduction of zinc smelting in India.

  Market overview and outlook forecast

  Since Trafigura Europe and Glencore successively announced the news of zinc smelter production cuts, futures zinc and spot zinc prices have risen continuously, but the three consecutive trading days’ daily limit has increased the risk of market downturns, and futures zinc stocks have surged. It shows that the reduction in production has not completely disrupted the balance of supply and demand. The supply of zinc in the zinc market is relatively tight, but the social zinc stocks can supplement the shortage of zinc supply in the zinc market. In the domestic market, the state’s macro-control measures ensured the basic supply of the zinc market and restricted the space for market speculation, and the price of zinc plummeted in response. In the market outlook, the factors of rising electricity prices in Europe are still inevitable, and the decline in zinc smelting output is inevitable. The concern of India’s zinc smelting production reduction is intensified. The supply of zinc in the zinc market is expected to decrease again.

  Related listed companies: Zhongjin Lingnan (000060), Chihong Zinc Germanium (600497).