SMM

According to the SMM survey, the premiums in Tianjin have rapidly declined to near discounts. What are the reasons behind this? How will the premiums and discounts evolve in the future? SMM's analysis is as follows:

Supply side, the maintenance situation of major smelters in Tianjin improved in November, and some smelters increased production in December. However, transportation was slightly restricted due to snow in north-west China, and it will take time for smelters to release their output. The arrivals at Tianjin warehouses were relatively low, and inventory continued to decrease, providing support for premiums and discounts. Under the backwardation structure, traders faced significant pressure to sell, and as smelters gradually delivered to warehouses, traders, concerned about storage capacity issues, continuously lowered premiums to sell.

Consumption side, there was better-than-expected demand in off-season in November and December. Ferrous metals prices remained stable, orders for galvanized pipes increased, steel tower orders remained steady, and transportation orders showed seasonal improvement. Additionally, some orders were "rushed for export," leading to an upward trend in downstream operating rates. However, with zinc prices rising and fluctuating at high levels, downstream gradually shifted to just-in-time procurement. Many small enterprises mainly engaged in tolling business, with costs significantly affected by zinc prices, while large enterprises primarily procured zinc ingots through long-term contracts, with fewer spot orders. Overall, the demand for zinc ingots in the Tianjin market was poor, and traders continuously lowered premiums to sell.

In summary, although consumption improved and inventory gradually decreased, downstream acceptance of high absolute prices was poor, leading to a continuous decline in premiums. The situation may improve with subsequent deliveries.