The recent marginal improvement in infrastructure investment has proven short-lived. Data from the National Bureau of Statistics shows that infrastructure investment growth from January to April was 4.8%, a slowdown from the 5.2% growth in the first quarter. Following the front-loaded issuance of special bonds, the area of new infrastructure project starts in May fell by approximately 7% year-on-year, corresponding to weaker demand for galvanized structural components.
Exports of galvanized sheets have been a rare bright spot on the demand side this year. From January to April, domestic exports of galvanized sheets reached approximately 4.8 million tons, an increase of 18.3% year-on-year. Strong infrastructure demand in Southeast Asia and the Middle East has kept export orders for domestic galvanized sheets at high levels. However, whether this high export growth rate can be sustained depends on the evolution of overseas trade barriers.
On the supply side, smelter maintenance is nearing its end, with incremental output expected. A major zinc smelter in East China is scheduled to complete its 45-day maintenance plan in mid-June, with an expected resumption of production of about 4,000 tons per month. This plant has already reduced output by a cumulative 18,000 tons this year. Its return to production will directly increase spot supply in the East China region.
Ore supply is also becoming more relaxed. The latest spot treatment charges (TCs) for imported zinc concentrate are quoted at $85 per ton, a significant recovery from $45 per ton at the beginning of the year, confirming the recovery of overseas zinc mine supply. The rise in TCs means reduced raw material procurement pressure for smelters, enhancing their motivation for subsequent production increases.
A divergence in signals is evident between domestic and international markets, with LME strength contrasting with SHFE weakness. LME zinc closed up 1.64% overnight at $3,525.5 per ton, with LME zinc inventories continuing to draw down to approximately 109,500 tons.
However, the main SHFE zinc contract closed down 0.19% overnight at 24,265 yuan per ton, showing a severe divergence from the international trend. Based on the current exchange rate and value-added tax calculations, SHFE zinc carries a premium of approximately 800-1,200 yuan per ton relative to LME zinc. With the import arbitrage window nearly opening, the probability is higher for LME zinc to converge towards SHFE zinc, rather than SHFE zinc following LME zinc's upward movement.
In the spot market, trading is light, and premiums remain under sustained pressure. The latest average price for Changjiang spot 1# zinc yesterday was 24,080 yuan per ton, down 510 yuan from the previous day. The spot premium over futures has narrowed to near parity. Traders report that downstream procurement is primarily for immediate needs, with extremely low willingness to stockpile.
It is understood that the raw material inventory days for a galvanizing plant in North China have decreased from 12 days in March to the current 7 days. Operating with low inventory has become the norm for downstream users, weakening marginal support for zinc prices.
In summary, the drawdown in LME zinc inventories and the rising proportion of canceled warrants are pushing LME zinc higher. However, expectations for increased domestic supply and the marginal slowdown in infrastructure demand are suppressing the upside for SHFE zinc. Under this divergent pattern, SHFE zinc is expected to fluctuate within the range of 23,900-24,400 yuan per ton in the short term. If the East China smelter resumes production as scheduled, spot premiums may come under further pressure. It is advisable to monitor changes in smelter and social inventories.
Comments