SMM Daily Review - 2011/8/1 Zinc Market

SHANGHAI, Aug. 2 (SMM) -- SHFE 1110 zinc contract prices opened slightly lower at RMB 18,860/mt on Monday, with prices mainly moving between RMB 18,800-18,900/mt and below the daily moving average in the morning session. In the afternoon session, SHFE 1110 zinc contract prices plunged due to strong short momentum and even hit a low of RMB 18,750/mt, but later climbed rapidly at the tail of trading, with prices finally closing at RMB 18,915/mt and hitting the 10-day moving average. Trading volumes fell by nearly 160,000 lots to 361,382 lots, while positions increased by 3,010 lots to 243,688 lots.

In spot markets, as SHFE 1110 zinc contract prices fluctuated in a narrow band below RMB 19,000/mt on Monday, traded prices for #0 zinc were between RMB 18,330-18,400/mt, with discounts of negative RMB 500-530/mt against SHFE 1110 zinc contract prices. Traded prices for #1 zinc were around RMB 18,320/mt. Spot discounts narrowed slightly, and traders showed higher interest in moving goods, but downstream buying interest was low, keeping overall trading sentiment muted.

The US finally reached an agreement on the debt limit issue on Monday. With regard to zinc price trends this week, 50% of market players believe zinc prices will continue to fluctuate in a narrow band. Although the US avoids the default risks, economies in the US and European countries see no improvement. In domestic markets, spot discounts continued expanding along with rising SHFE zinc prices, with spot zinc prices finding support at RMB 18,000/mt but meeting resistance at RMB 18,500/mt. The markets remain cautious ahead of new CPI for July. In this context, SHFE 1110 zinc contract prices are expected to fluctuate around RMB 19,000/mt, while spot prices are expected to move between RMB 18,000-18,500/mt.

33% of market players predict that SHFE 1110 zinc contract prices will likely continue rising. Since market risk appetite improves as the US debt limit issue is solved, SHFE 1110 zinc contract prices are expected to move between RMB 19,000-19,500/mt. Spot discounts should further expand to negative RMB 600-700/mt, helping increase arbitrage trading.

The remaining 17% of market players believe that transactions were mainly made among traders after discounts expanded, while downstream buying interest was low, and spot inventories still remain at high levels. Moreover, smelters are also actively moving goods at RMB 18,000/mt, so zinc prices should fall further. SHFE 1110 zinc contract prices will likely fall to RMB 18,200-18,500/mt, while spot zinc prices will fall to RMB 18,000/mt.