SHANGHAI, Aug. 23 (SMM) -- A string of economic data triggered investor concerns over the outlook for global economic recovery last week, and lingering European debt crisis prompted speculative funds to flow into gold markets. As a result, gold prices set a new high last Friday, with prices closing at USD 1,852.2 per ounce, up USD 30.2 per ounce. Standard & Poor’s lowered its forecast of US economic growth in the next three years to 1.7%, and the US dollar index weakened from 74 to 73.6 in response, helping LME zinc prices climb to USD 2,200/mt at the tail of trading, with prices finally closing at USD 2,196/mt, up USD 33/mt.
SHFE 1111 zinc contract prices climbed to break RMB 17,000/mt in the morning session on Monday, with prices mainly moving between RMB 17,000-17,100/mt. The Shanghai Composite Index fell back in the midday, and LME zinc prices dipped in response. As a result, SHFE 1111 zinc contract prices lost RMB 17,000/mt, and later plummeted due to strong short momentum, with prices finally closing at RMB 16,765/mt, down RMB 65/mt. Trading volumes fell by nearly 130,000 lots to 477,726 lots, while positions increased by 15,664 lots to 256,602 lots, with short momentum stronger.
In spot markets, as SHFE 1111 zinc contract prices fluctuated in the morning, traded prices for #0 zinc were between RMB 16,850-16,900/mt, with discounts of negative RMB 200/mt against SHFE 1111 zinc contract prices. Spot discounts narrowed gradually to negative RMB 180/mt following falling SHFE zinc prices in the midday, and cargo-holders mostly stood on the sidelines after zinc prices edged lower, while downstream buying interest was low as well. #1 zinc was traded between RMB 16,800-16,850/mt. As SHFE zinc prices fell continuously in the afternoon, cargo-holders even suspended operations, leaving trading sentiment more sluggish.
Both SHFE and spot zinc prices fluctuated at low levels last week. Following Goldman Sachs’s downgrade, Standard & Poor’s also lowered its outlook for US economic growth, with concerns over slower economic recovery still overshadowing the market.
With regard to zinc price trends this week, 40% of market players believe that zinc prices should rise further to stand at the RMB 17,000/mt level, moving between RMB 17,000-17,600/mt. Previous negative news has been absorbed by the market, and recent poor economic data as well as slower economic growth will help trigger the implementation of QE3. In domestic spot markets, spot discounts against SHFE 1111 zinc contract prices have narrowed to negative RMB 200/mt, causing goods supply available in the market to fall, and which will support spot prices.
40% market players anticipate SHFE zinc prices should unlikely break through the RMB 17,000 level, moving between RMB 16,700-17,200/mt. They believe the expectation of QE3 policy announcement did not virtually ease market concerns, and transactions of SHFE zinc contracts should be low due to tight cash flow at the end of the month, so zinc prices will unlikely rise. In domestic spot markets, as goods supply available in the market is tight, and smelters are unwilling to move goods, spot prices should be firm. In this context, spot prices should fluctuate between RMB 16,600-17,000/mt.
The remaining 20% believe that zinc prices will likely fall further. Goldman Sachs, Morgan as well as Standard & Poor’s all downgraded their forecasts of US economic growth, and concerns over the banking sector throughout the Euro zone also spread. Meanwhile, SHFE announced its approval of adding 70 kt zinc holding capacity to help provide capacity for arbitrage operation at extended discounts. As a result, zinc prices should fall further. SHFE 1111 zinc contract prices should move between RMB 16,300-16,800/mt, with spot prices firm between RMB 16,000-16,500/mt.