SHFE zinc futures gained 1.06% to ¥24,380/mt on June 26, outperforming LME’s 0.82% rise. The Shanghai contract has declined 2.13% over the past seven days but found support above ¥24,000 as Chinese galvanized steel demand remained steady.
China’s galvanized steel production, which consumes roughly 60% of the country’s zinc, held at 82% capacity utilization in May. The construction sector — specifically infrastructure projects under the government’s Q3 fiscal push — is driving demand for galvanized structural steel. Highway guardrail and transmission tower orders were notably strong.
SHFE zinc inventories declined 4.1% in the latest week to 62,000 tonnes, suggesting the domestic market is absorbing supply faster than it’s being delivered. The backwardation in the SHFE front-month spread indicates physical tightness, particularly for special high-grade zinc used in die-casting alloys.
China’s refined zinc imports rose 18% year-on-year in May, as domestic smelters struggled with concentrate availability and buyers turned to LME-linked imports. Korean and Australian zinc dominated the import mix, with Kazakh material also gaining share as transportation routes shifted.
The Shanghai premium over LME zinc, adjusted for VAT and freight, stands at roughly $85-100/mt. This arb window is open but narrowing. If Chinese construction demand accelerates on Q3 stimulus, the premium could widen again, pulling more LME inventory eastward.
Chinese zinc demand is holding up better than much of the market expected, supported by infrastructure spending. For buyers with Asian manufacturing operations, SHFE-linked pricing remains competitive versus LME. Watch the SHFE-LME arb — if it widens above $120/mt, expect a wave of imports that could temporarily ease Chinese physical tightness. Consider booking Q3 tonnage before stimulus disbursement accelerates demand.