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Antaike View: Tight Zinc Concentrate Supply to be Eased in Late Q2

2020-04-27 13:20:43

Beijing, April 27 (Antaike)--Overseas mines production was interrupted by the covid-19 virus, as well as international trade, therefore raw materials supply was tight temporally. Meanwhile, domestic mine production declined, and mines were in low production enthusiasm on the falling zinc prices. Under this circumstance, TC just plunged.


According to Antaike’s statistics, about 374kt of zinc concentrate output in overseas market was affected by April 17th, of which 50% was in Latin America. But Antaike believed that output fall of overseas mines may not as high as market expected, and some mines would lift output to make up the loss. For example, Glencore will restart its nickel and zinc operations in the Canadian province Quebec before May 4th, and South Africa will allow mines to operate 50% of capacity. It will be hard for mines to resume production to the level before the epidemic in a short term, but output will increase gradually.


After accessing the output resumption and blocked transportation, Antaike thinks the tightness of domestic zinc concentrate supply will be eased significantly at the end of Q2, but short term supply pressure is still huge.


It is rational for TC to fall under the contracted supply, but it just declines too rapidly. Currently, TC for imported ore has fallen to $220/dry tonne, with the lowest quotation of $200/dry tonne, but it was $300/dry tonne at the start of 2020. TC Quotation for homemade ore was also in chaos: the active quotation was 5500-5800 yuan/t, but south region had 5200 yuan/t and north region still had 6,000 yuan/t. After absorbing the winter storage in Q1, refineries face tight raw materials inventory, and now they are preparing the May purchasing contract. The falling import ore is for sure in May and June, thus the latest TC quotation will be over 500 yuan/t lower than that in April.


To sum up, market supply and demand contradiction will become further intensified in May because of the decreasing supply from overseas mines, and refineries will feel the tightness soon. Domestic zinc refineries will advance the summer regular maintenance to May and June, which will affect 30ktpy of capacity, however, demand for zinc concentrate won’t fall as refineries will seek for raw material source during the maintenance, thus TC will reach the lowest within the year, which will also boost zinc price.


With the ease of the epidemic in foreign nations, imported ore will become normal soon, and domestic mines will also accelerate to produce if TC is low enough, which will rebalance market. We believe TC will stop falling at the end of Q2.


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