Key investment points
Zinc prices hit a multi-year high. As of early April 2022, the spot price of zinc ingot was 28200 yuan, which has reached an all-time high, up 70% from the bottom of 2020. The rise of futures prices overseas is greater than that in China.
The increase in inventory and the decrease in inventory have led to huge import losses. As of April 2022, LME was only 120000 tons, down 59% from the previous high (April 2021); SHFE inventory has significantly accumulated to 126000 tons, reaching an all-time high, up more than 1500% from the bottom (July 2021). Since 2020h1, due to the differences in supply and demand patterns at home and abroad caused by the epidemic, the Shanghai Lun ratio fell to 6.4 in April 2022, a new low in history. Reflected in the import and export profits, according to our calculation, the import loss of zinc in the first ten days of April 2022 reached 4000 yuan / ton.
Imports have shrunk and processing fees have strengthened significantly. The price ratio between domestic and foreign prices is low, and the import volume has decreased significantly. As of February 2022, China's net import of zinc ingots is only 9000 tons, a new low level in history. The import reduction of zinc ingots also affected the import of zinc concentrate. Since the Spring Festival, the inventory of zinc concentrate in China's main port according to Mysteel statistics has been declining, with a decrease of nearly 50% as of April 2022 compared with the beginning of the year. The processing fee of imported ore increased by 176% over the beginning of the year. When the supply of imported ore is small, but the processing fee is still significantly stronger, we think it is more reflected in the bottleneck of smelting end capacity.
Under the supply bottleneck, the supply and demand pattern continued to improve. On the supply side, the cumulative output of zinc ingots from January to February 2022 decreased by nearly 2% year-on-year; The operating rate in March 2022 was 80.05%, down 1.5pct year-on-year. As the main downstream of zinc, the operating rate of galvanized sheet increased slightly in April 2022, with a month on month increase of 1.7pct and a year-on-year increase of 2.5pct. From the terminal point of view, although the real estate market continued the downturn at the beginning of the year, with the deregulation policies of the local real estate market, the downward trend of the real estate market may gradually slow down. Therefore, we believe that since April, with the recovery of demand in infrastructure and other fields, the demand for zinc will also rise further. Considering the high cost of overseas production reduction and the limited impact of domestic zinc enterprises, the supply and demand pattern of zinc is expected to be good for a long time.
The profit of smelting end is thickened. In April 2022, the gross profit per ton of zinc smelting will reach 120 yuan. We believe that when the Shanghai Lun ratio of zinc has dropped to a new low, with a large increase in exports, smooth price transmission channels, and the new internal and external price ratio is expected to be repaired, China's zinc price is expected to continue to rise; And the upward processing fee means that the profits will be more inclined to the smelting end, and zinc smelting enterprises are expected to fully benefit.
Investment advice and related companies. Considering that overseas supply is still in short supply in the short term and China's supply remains low, we expect that the transmission of overseas prices to China is relatively certain and will be sustainable; The rise of overseas mineral processing fees is also expected to thicken the profit of smelting end. Investment suggestions: 1) the integration of mine + smelting is high, and there are still targets of capacity increment. It is suggested to pay attention to: Yunnan Chihong Zinc & Germanium Co.Ltd(600497) , Shenzhen Zhongjin Lingnan Nonfemet Co.Ltd(000060) ; 2) Pure smelting, high elasticity target, it is recommended to pay attention to Huludao Zinc Industry Co.Ltd(000751) .
Risk warning: the demand is less than expected; Monetary policy tightening; Supply exceeded expectations.
