SHANGHAI, Sep 13 (SMM) - This week, the market attention will be focused on the ZEW Economic Climate Index in the eurozone in September, the CPI annual rate before seasonal adjustment in the United States in August, the monthly rate of industrial output in the eurozone in July, the monthly rate of PPI in the United States in August, and the final value of the CPI annual rate in the eurozone in August. In addition, the European Central Bank will announce its interest rate decision and meeting minutes this Thursday.

In terms of LME zinc, Powell once again emphasised the necessity to rein in inflation last week, quoting his predecessor Volcker’s opinion about inflation many times. His statement not only greatly increased the odds of a 75 basis point interest rate hike at the end of September, but also indicated that it was still under evaluation whether the economy had really entered a recession during the tightening macro policies. Subsequent attention shall be paid to overseas high frequency economic data. Fundamentally, with policy portfolio rolled out in Europe and the United States, the prices of natural gas and electricity in Europe both dropped last week, among which the electricity prices already declined to around 350 euros/MWh. Still, it remains uncertain whether Europe can survive this winter under the pressure of energy shortage, thus the risk of overseas smelters reducing or suspending the production still exists. However, considering the background of weakening global demand, SMM believes that the influence of energy on prices will abate going forward. The continuous narrowing of the LME cash-to-three-month backwardation also support the above-mentioned proposition. On the whole, the market orientation was still determined by the macro policies. As the market is free of major concerns in the short term, the prices tend to fluctuate. It is expected that LME zinc will run between $3,000-3,250/mt.

In terms of SHFE zinc, the latest data shows that the output of refined zinc in August stood at 462,700 mt, and that in September is estimated to increase 63,000 mt month-on-month to 525,700 mt. Following the completion of maintenance in smelters, SMM believes that the sufficient zinc concentrates will be translated into growing output of refined zinc. In this case, larger consumption will be needed in the market to digest the inventory, which is likely to become the critical factor in spot premiums and the spread between the front-month and next-month contracts. In the short term, the slump in zinc prices prompted concentrated restocking among downstream enterprises, which led to a rapid decline in inventory recently. However, SMM deems that the current destocking is not sustainable for three reasons. First, the low operating rates of downstream enterprises have raised concerns. Specifically, the average operating rate of galvanising enterprises last week fell back, since no improvement in orders was seen despite the peak season. Meanwhile, the average operating rate of die-casting plants rebounded thanks to the replenishment of the terminal enterprises, who, in fact, did not receive growing orders. Second, due to the expanding price difference between Shanghai and Guangdong, stocks in Guangdong were transferred to Shanghai, which are expected to arrive in the wake of the Mid-Autumn Festival holiday. Third, the recent resurging pandemic restricted the transportation of smelters in some areas, resulting in low arrivals in the market. On the whole, the low inventory, high premiums and the spread between the front-month and next-month contracts are the strongest supports for the futures prices in the short term, while in the long run the consumption will play an important role. It is expected that SHFE zinc will move between 23,000-25,000 yuan/mt in the short term.

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