LME Zinc Pared Gains due to Higher-than-expected Economic Readings

SHANGHAI, Mar 6 (SMM) -  LME zinc opened at $3,048/mt last Friday and closed down $3.5/mt or 0.11% at $3,043/mt. The trading volume was down to 5,920 lots, and open interest gained 471 lots to 194,000 lots. LME zinc inventory decreased by 600 mt to 35,750 mt.

The most-traded SHFE 2304 zinc contract finished at 23,490 yuan/mt last Friday night, up 210 yuan/mt or 0.90%. Trading volume was reduced to 40,942 lots, and open interest rose by 824 lots to 87,114 lots.

Last Friday, the US ISM non-manufacturing PMI for February recorded 55.1, higher than the expected 54.5. The final value of the US Markit services PMI exceeded expectations and recorded 50.6, beating the expected 50.5. Economists pointed out that after falling to a 27-month low in January, the inflation rate of goods and services re-accelerated in February to the highest level since October last year. As such, Fed’s semi-annual monetary policy report reiterated that it entailed continued rate hikes to bring the inflation rate down to 2%. If necessary, Fed will adjust the progress of scaling down balance sheet. Richmond Fed President Barkin said that the US benchmark interest rate may rise to 5.5-5.75%, which means another 100 basis points of interest rate hikes are likely, and that he did not expect a rate cut in 2023. In addition, former US Treasury Secretary Summers called on Powell to retain the option of raising interest rates by 50 basis points in March. China’s government work report proposed the main goals for this year's development: GDP growth rate at about 5%, and the CPI growth rate at 3%. In particular, efforts will be stepped up to expand domestic demand by prioritising the recovery and expansion of consumption.

According to China's government work report, the targeted GDP growth rate this year was set as 5%, and the focus of the work was on the recovery and expansion of consumption as well as the stability of commodity consumption. Fundamentally, the production cuts at zinc smelters induced by the recent power rationing in Yunnan during the dry season has aroused market concerns over zinc supply. However, it still remains to be seen whether the consumption will be sustainable. Therefore, in the short term, zinc prices will maintain a range-bound trend.