Orient Securities: Supply rigidity anchors zinc price bottom line, liquidity expectations open up upward space

The Zhitong Finance App learned that Orient Securities released a research report saying that in a context where zinc prices have upward momentum and disperse metals can be produced along with lead-zinc mining and lead-zinc smelting, it is recommended to focus on companies with self-sufficient zinc concentrates, large smelting scale, and simultaneous recycling of scattered metals as by-products. It is recommended to focus on Zhuye Group (600961.SH, purchase), which has a large scale of lead-zinc smelting and is gradually increasing self-sufficiency in lead-zinc ore; other targets: Chihong Zinc-Germanium (600497.SH, unrated), CICC Lingnan (000060.SZ, unrated), and Jinhui Co., Ltd. (603132.SH, unrated).

Orient Securities's main views are as follows:

Zinc: a basic industrial variety that dances with disperse metals

Zinc has excellent wear resistance and ductility. It can be widely used in construction, urban construction and other fields closely related to basic industries, and is a key industrial metal. Furthermore, the supply of disperse metals such as germanium, indium, cadmium, gallium, and thallium is highly dependent on the development of lead-zinc ore. Some investors in the market believe that downstream demand for zinc is relatively stable or even weak, and that companies whose main business is zinc mining and smelting are not resilient in terms of performance on the supply side of zinc ore or in anticipation of entering the release cycle. However, the bank believes that the supply side of zinc metal is rigid; demand for zinc in the new infrastructure and booming shipbuilding industry driven by AI computing power demand may exceed expectations; interest rate hikes may be expected or reversed, and financial attributes support the upward elasticity of zinc prices; the supply of scattered metals also depends on the development of lead-zinc ore and smelting and recycling, and the market should pay attention to such companies.

Supply side: The concentrate supply is rigid, and the smelting process is close to being constrained

On the zinc ore side, the global concentrate supply distribution is concentrated. Due to the decline in investment in lead-zinc ore exploration in recent years, limited new projects worldwide, and existing mines facing declining grade problems, it is expected that the growth rate of zinc concentrate production will gradually decline from '26. On the smelting side, due to a shortage of supply at the mining side, smelting profits excluding by-product revenue fell into losses, or forced smelters to cut production losses; electricity costs account for about 40% higher in electrolytic zinc smelting costs, and the global power supply gap or widens under current AI computing power demand, or restricts the smelting process; in terms of recycled zinc, domestic “billing economy” has been tightened over the past 26 years, and production capacity in the regeneration chain may be gradually tightened, and refined zinc supply restrictions or gradually became apparent.

Demand side: The new wave of infrastructure has become a new point of interest, and the boom in shipbuilding promotes marginal growth

Zinc demand accounts for 60% of galvanized sheet consumption in traditional industrial fields such as construction and infrastructure. The surge in global demand for AI computing power has brought about a boom in investment in new infrastructure such as AI data centers. Based on its anti-corrosion and conductive properties, galvanized sheets can be used in data centers for load-bearing structures, cable management, and other underlying infrastructure facilities. It is expected that the total amount of zinc used in data centers can grow from 140,000 tons in 25 years to 340,000 tons in 30 years, driven by AI computing power demand. Furthermore, the current shipbuilding industry maintains a high level of prosperity, and there are sufficient orders for ships at the enterprise level. It is expected to become a more flexible marginal incremental source in the industrial zinc demand structure. In the next 2-3 years, it may enter a wave of intensive deliveries, and the compound annual growth rate of zinc used in sacrificial anodes in shipbuilding is expected to reach 5% from 2025 to 2030. It is expected that under the support of a supply and demand pattern with strong increases in demand, such as the gradual emergence of supply-side constraints on zinc and new downstream infrastructure, there may be a clear supply gap in 28 years, and there is room for zinc prices to rise.

Financial attributes: Expectations of interest rate hikes are yet to be reversed, and liquidity support is upward elasticity

The sharp rise in crude oil prices caused by the US-Iran conflict raised concerns about inflation, and the market worried that monetary policy would shift to interest rate hikes. However, under the boom in the K-type economy in the US, consumer data weakened marginally. Meanwhile, the easing of the US-Iran conflict caused the US CPI inflation data for June to cool down, and expectations of interest rate hikes are expected to return. Looking back at past interest rate cut cycles, zinc prices often started rising before interest rate cuts. The probability of interest rate hikes in the current market price is slightly revised, or there is a window opportunity for an expected rebound, injecting upward elasticity into zinc prices.

Risk Alerts

Risk of macroeconomic conditions and geological fluctuations; risk of downstream demand falling short of expectations; risk of policy implementation falling short of expectations; risk of mine-side supply volume exceeding expectations; risk of omission of production capacity statistics affecting calculation results; risk of changes in assumptions affecting measurement results