The most-traded SHFE June contract dipped as low as 23,255 yuan ($3,699) per tonne on Thursday April 12, its lowest level since August 7, 2017.

The contract closed at 23,515 yuan per tonne on Friday, which was 170 yuan per tonne higher than Thursday’s close, but still way lower than its highest level this year, which was 27,230 yuan per tonne on January 29.

“Speculators are using this rumor to sell down zinc,” a Shanghai-based trader said.

Word in the market was that the SRB would be selling 50,000-60,000 tonnes of metal in the market, although its motive was unclear.

Some believe the state agency was likely to be doing this to refresh its inventories - that is, selling dated material and replacing with newer metal, which is a common practise by the agency - rather than selling inventories to supply a tight market.

“There is no shortage of zinc in the market now. Stock levels are high in the market - there are about 200,000 tonnes in bonded warehouses,” the trader said.

Metal Bulletin had assessed zinc stocks in Shanghai-bonded warehouses at 214,000-215,000 tonnes at the end March, while zinc inventories at SHFE warehouses were at 137,853 tonnes on April 13.  

A second Shanghai-based trader added: “I don’t think the SRB is selling because there is a shortage of zinc in the market, zinc is still very easy to buy. It’s probably doing a change of old stocks for new stocks in the market.”

Still market participants reckoned there could be further downside to SHFE zinc prices in the near-term due to the rumor.

“The SHFE zinc prices have stabilised today after plunging due to the rumor, but in the short-term, prices remain weak technically,” China’s Ruida Futures said in a report late on Friday, adding that the unconfirmed SRB rumor is adding uncertainty to SHFE zinc prices.  

With zinc demand also yet to pick up, despite the start of the usual peak demand season in April, further downward pressure could come on SHFE zinc prices, sources added. 

“Even if the SRB [does not] sell its stocks, the zinc price will keep falling in the coming days due to high stock levels and low demand in the market,” one Chinese producer source said.

In London Metal Exchange-registered warehouses, zinc inventories reached a total of 194,675 tonnes on April 13.

“Inventories on the LME are already up 10% this year, including a sudden inflow of 80,000 tonnes in early March,” ANZ Research said on Friday.