SHANGHAI, Aug. 9 (SMM) -- Commodity prices plummeted after Standard and Poor's cut the US's credit rating last weekend, and base metal prices tumbled as well. SHFE 1110 zinc contract prices again opened significantly lower at RMB 16,655/mt on Monday, with prices falling rapidly due to strong short momentum in the morning session and hit a new low of RMB 16,320/mt. Later, SHFE 1110 zinc contract prices climbed steadily supported by buying at lower prices after briefly hitting a low, with prices mainly moving between RMB 16,600-16,800/mt in the afternoon session and finally closing at RMB 16,755/mt, down RMB 540/mt or 3.12%. Trading volumes increased by 200,000 lots to 627,180 lots, while positions increased by 6,356 lots, with short positions still stronger than long ones.
In spot markets, as SHFE 1110 zinc contract prices set a new low after opening significantly lower, and later rebounded gradually and mainly moved above the daily moving average in the morning session, traded prices for #0 zinc were around RMB 16,650/mt, with discounts of negative RMB 200-230/mt against SHFE 1110 zinc contract prices. SHFE zinc prices slipped below the daily moving average in the midday, and spot zinc prices fell to RMB 16,450-16,500/mt in response, with discounts remaining unchanged. Traded prices for #1 zinc were between RMB 16,400-16,450/mt. Downstream consumers purchased goods actively, and overall trading sentiment was brisk.
With the disappointing US ISM data and concerns that European debt crisis will spread depressed market confidence, SHFE zinc prices once fell by the daily limit last Friday, with SHFE 1110 zinc contract prices falling by the daily limit again at the end of trading. Standard & Poor’s downgraded US credit rating to AA+ last Saturday, causing global stocks to plunge, and with SHFE zinc prices hitting a record low of RMB 16,235/mt on Monday.
With regard to zinc price trends this week, 66% market players believe that prices should fluctuate at low levels but will unlikely fall further. As US credit rating was downgraded, the US will take additional quantitative easing policies, and zinc prices will be well supported by falling US dollar index. In spot markets, smelters are holding goods, which will back spot prices. SHFE 1110 zinc contract prices are expected to move between RMB 16,700-17,000/mt.
17% believe that zinc prices will likely fall further. Standard & Poor’s downgraded US credit rating due to US poor economic condition, despite an agreement on the debt ceiling issue, and the market concerns will not ease in the near term. The European central bank resumed the government bonds purchasing plan, triggering concerns European debt crisis will spread. The market is anticipating additional interest rate or deposit reserve ratio hikes if new CPI and PPI for July remain high. In this context, SHFE 1110 zinc contract prices are expected to be RMB 16,000-16,500/mt.
The remaining 17% believe that zinc prices will likely rebound. SHFE 1110 zinc contract prices have hit a yearly low, but with the low-end rising. Since smelters have been holding onto their goods since early August, spot prices should be well supported after goods supply available from arbitragers is consumed. SHFE 1110 zinc contract prices are expected to rally to RMB 17,000/mt, moving between RMB 17,000-17,300/mt.