SHANGHAI, Jul. 26 (SMM) -- SHFE 1110 zinc contract prices opened slightly higher at RMB 18,830/mt, and later slipped to RMB 18,650-18,700/mt in the morning session negatively affected by falling LME zinc prices. As the Shanghai Composite Index dropped, SHFE 1110 zinc contract prices declined again and finally closed at RMB 18,530/mt, down RMB 140/mt or 0.75%, with prices falling below the 5-day moving average, to the 10-day moving average. Trading volumes increased by nearly 30,000 lots to 231,552 lots, while positions increased by 1,250 lots to 215,486 lots. SHFE zinc prices lacked upward momentum, with short positions increasing significantly.
SHFE 1110 zinc contract prices slipped after opening, with prices mainly moving below the daily moving average. In spot markets, traded prices for #0 zinc were between RMB 18,200-18,250/mt, and some transactions were made when SHFE zinc prices were RMB 18,150/mt, with spot discounts of negative RMB 450-470/mt against SHFE 1110 zinc contract prices. Traded prices for #1 zinc were between RMB 18,150-18,180/mt. SHFE zinc prices failed to stabilize, and downstream processors were cautious toward purchases, keeping overall trading sentiment neutral. As SHFE zinc prices fell continuously in the afternoon, trading volumes were very limited despite that spot discounts remained between negative RMB 450-470/mt.
Last week, Euro zone leaders reached a consensus on the Greek bailout issue at the EU summit, and the US debt ceiling issue became the focus of markets.
With regard to zinc prices this week, 36% of market players believe zinc prices should continue rising. European debt crisis issue was solved, and LME zinc canceled warrants exceeded 100 kt. As a result, SHFE 1110 zinc contract prices should rise to break through RMB 19,000/mt.
36% of market players believe zinc prices should meet resistance at RMB 19,000/mt. Since market players are aggressively buying spot zinc and selling SHFE zinc contracts given expanding spot discounts, zinc prices should barely rise. SHFE 1110 zinc contract prices should fluctuate between RMB 18,500-19,000/mt, while spot zinc will be traded between RMB 18,000-18,500/mt.
The remaining 28% believe that zinc prices should fall since enterprises experience cash flow problems at the end of the month. Moreover, downstream buying interest was low when spot zinc prices rose to RMB 18,000/mt, and with transactions mainly among arbitrage traders. In this context, SHFE 1110 zinc contract prices should fall to RMB 18,200-18,500/mt, with spot prices down to RMB 18,000/mt.