China's zinc price trend in 2022 could be described as "two rises and one decline". "Two rises" had been mainly pushed up by the fermentation of the energy crisis in Europe and the low inventory of the fundamentals in China, while the interest rate hike cycle was the major reason for "one decline". Looking forward to 2023, we should pay much attention to the impact of supply and inventory, macro policies, and consumption expectations. China's full zinc ingot price is expected to run in the range of Yuan 21,000-24,000/tonne in 2023.
The conflict between Russia and Ukraine made the European energy crisis ferment, causing European power tension and soaring electricity prices, triggering continuous supply tension in European smelters. So, high premiums in spot markets occurred in both China and abroad in the first quarter of 2022. Besides, short hedging positions were facing danger and emotional capital had been speculating. Therefore, the zinc ingot spot price rose to Yuan 32,000/tonne, hitting a 10-year high.
Then the cycle of interest rate hikes came. Interest rate hike expectations and the continuous increase rate of the US dollar were unfavorable to commodity markets and suppressed commodity prices, including zinc prices. The constant discount occurred in the second and third quarters. Macro pressure, including the US dollar index's sharp rise, dispelled the energy crisis's news heat. The zinc ingot price hit an annual low level of Yuan 21,000/tonne after the Federal Reserve raised interest rates.
Fundamentals gradually absorbed those macro policies, subsequently, leading factors affecting zinc prices returned to fundamentals. The supply of zinc ingots had not been released as expected due to the impact of the power shortage and the epidemic. Moreover, the social inventory of zinc ingots continued to decline and create a historical low for nearly five years. Thus, zinc spot prices came back to a gradually stronger trend on the tight supply and high premiums, maintaining in the range of Yuan 24,500-25,500/tonne in the fourth quarter.
Although zinc consumption was not as optimistic as expected according to Mysteel's survey of downstream enterprises operating rates, the tight supply would affect more explicitly on zinc prices via smelters' production reduction and changes in in-plant and social inventory. The fall of zinc price may depend on the rise of inventory level in the future. Mysteel estimates that the current zinc price rise will not be supported in 2023, and will even fall back.
Based on the current excessive global supply and high TCs of zinc concentrate, mines are more likely to alienate benefits to smelters in 2023. Therefore, refined zinc output is expected to increase in 2023 with a high probability.
There will be a certain increase in zinc consumption with the accelerated pace of work and production resumption after the Spring Festival and the gradually controllable epidemic situation. However, zinc downstream consumption is not necessarily the direct beneficiary of the elimination of the epidemic. In addition, the outbreak of the epidemic only accelerated the decline of future consumption since there were signs of economic weakness in Europe and the United States before the outbreak. Europe and the United States are still in the midst of an economic recession.
Moreover, the prices of global industrial and consumer goods are rising. Therefore, a new round of interest rate hikes expectations will come in Europe and the United States. Zinc prices may rebound and then fall in the second and third quarters and gradually stabilize in the fourth quarter due to the impact of interest rate hikes expectation and consumption inhibition.
Please contact xuzhongping@mysteel.com for Zinc Database with more details.
Written by Paula Xu, xuzhongping@mysteel.com
