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Analysis
LME zinc stocks totaled 211,475 tonnes on December 16, down from a peak of 222,975 tonnes on November 20, reflecting improved downstream demand. Currently, 10.4% of stocks are booked for removal. The LME forward curve implies fresh gains have continued to encourage an element of forward selling. We maintain fresh highs are likely to encourage fresh forward selling. Shanghai Futures Exchange zinc stocks totaled 46,681 tonnes in the week to December 11, an 8,829-tonne fall from a week earlier. The decline reflects the decision by some smelters to bring forward maintenance suspensions. In our latest Base Metals Tracker, we examine the outlook for mine production in the year ahead. Based on the latest guidance in addition to our assumption for a modest increase in Chinese mine production, we project global mine production to total 13.3 million tonnes in 2021, an increase of 1.1 million tonnes or 9.3% on year. Compared with 2019, however, the growth is more modest at 3.9% or around 500,000 tonnes. When adjusted for our base case disruption allowance of 4%, global production of 12.86 million tonnes is essentially unchanged on the 2019 level. And although authorities have begun to roll out coronavirus vaccines, the threat of another year of above-average disruptions remains high; applying our high-case disruption rate of 6%, we see global production declining by around 300,000 tonnes or 2.3% from 2019 levels. Against this background, conditions in the zinc concentrate market are set to remain tight for longer. Spot TCs look set to remain under pressure in the run-up to Chinese New Year (February 12, 2021), which will continue to lend a downward bias to annual benchmark negotiations. This will increase pressure on smelter margins; some Chinese smelters have opted to bring forward maintenance suspensions because of increasingly unfavorable margins. For now, we maintain our forecast for refined zinc production to increase by 3% in 2021 to 13.95 million tonnes, although risks appear tilted to the downside. In the physical market, premiums in Southeast Asia and Europe edged slightly higher in the week to December 15 amid tight availability. Additionally, the International Lead & Zinc Study Group (ILZSG) pegged the refined zinc market in a 479,600-tonne surplus in the first 10 months of 2020. In contrast, reported stocks increased by only 178,000 tonnes over the same period, which implies 301,600 tonnes of metal moved into off-market storage. Conclusion
The current chart configuration remains supportive and implies room for further gains across the short and long term, although we would not rule out a profit-taking-led pullback ahead of the end of the year. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations. |
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