Zinc Ingot prices are on the consistent rise in China backed by the increased costs of Zinc metal

China is known to be the world's top producer of base metals, including Zinc, Aluminum, and Steel. China dominates the supply of Zinc metal globally as it accounts for about 35% of the world's production, i.e., approximately 4.1 million tonnes as registered in 2021. Since H2 2021, under the influence of the "carbon peaking and carbon neutrality," Asia Pacific, North America, and Europe have been experiencing pain due to the global energy crisis that has become increasingly prominent. The prices of thermal coal, natural gas, and crude oil have soared drastically due to supply disruption. Natural gas prices in the Shanghai market surged by 56.15% year-on-year in 2021. The price of Zinc smelters has also risen significantly in the domestic as well as international market, which forced the producers to squeeze their profit margins and reduce production.

Coal and natural gas are the main contributors to the power supply around the globe. The worldwide supply of fossil energy is constrained by the "dual carbon" policy implemented by the Chinese government to cut carbon dioxide emissions sharply by 2030. The peaking energy shortages is further driven by the rising Omicron variant cases that have pushed up the energy prices in China. In the Chinese domestic market, the thermal coal output touched record highs and increased by 4.7% year-on-year, whereas the electricity consumption has increased by 10.3% year-on-year in 2021.

As per ChemAnalyst, the prices of Zinc Ingot are on a consistent rise in China on the back of the increased prices of Zinc metal. Zinc Ingot prices witnessed a hike of 0.4% in the first week of February and escalated from USD 3155/T to USD 3170/T FOB Tianjin from January 28 to February 04. Major reasons behind the price rise include the severe shortage of coal due to weather and environmental protection inspections, which resulted in increased energy prices, China's zero-tolerance covid policy and, pandemic prevention and control measures, which caused delays in coal customs clearance.

According to the Shanghai Metals Market (SMM) data, the inventories of Zinc Ingot across the seven major regions in China totaled 160,500 mt, up 15,200 mt from January 24 and up 26,900 mt from January 21. The accumulation of domestic inventories accelerated during the last week of January as the higher zinc prices suppressed downstream demand and increased the number of cargoes. The inventory in Tianjin also increased as several producers have shut down ahead of the Lunar New Year.

According to ChemAnalyst, the efforts to ensure the clear blue skies for the upcoming Beijing Winter Olympics are likely to hamper Zinc production until the last week of February. The stagnancy in the Zinc Ingot prices is anticipated to persist in CY2022.