Recently, SHFE zinc has been highly sensitive to macro headwinds, and overall trading activity remaining subdued. On balance, tightening concentrate supply coupled with declining smelter by-product margins offers support to zinc prices; however, weak downstream consumption and persistently high inventories cap upside potential.
Cross-regional shipment of zinc concentrates is increasingly common across China. Although most smelters are operating at a loss, they have not yet breached their cash-cost floor and largely choose to maintain output to preserve cash flow. A falling SHFE/LME price ratio has reduced import-arbitrage appeal, curbing inflows of imported concentrates. Together with slow ramp-up of domestic mine output, raw material inventories at the majority of smelters have fallen below 15 days of consumption. While firm sulfuric acid and other by-product prices have partially offset squeezed margins, smelters are turning more cautious in concentrate procurement as TCs compress further.
The tightness in the zinc concentrate market is unlikely to ease in the near term. Frequent overseas mine disruptions and sluggish release of incremental domestic production have created a structurally short concentrate market, providing solid support for zinc concentrate prices. Treatment Charges are expected to remain at low levels going forward.
