SHANGHAI, Aug. 30 (SMM) – Positively affected by LME zinc prices last Friday, SHFE 1111 zinc contract prices opened slightly higher at RMB 17,100/mt on Monday. The LME market was closed on Monday, and SHFE zinc prices fluctuated weakly following the Shanghai Composite Index trend. SHFE 1111 zinc contract prices lacked upward momentum after opening higher, and fell slightly to around RMB 17,000/mt, with prices mainly moving between RMB 17,000-17,150/mt. Finally, SHFE 1111 zinc contract prices closed at RMB 17,125/mt, up RMB 75/mt. Overall trading sentiment was sluggish, with trading volumes falling by over 100,000 lots to 310,960 lots, while positions increased slightly by 21,10 lots to 282,704 lots.
In spot markets, as SHFE 1111 zinc contract prices fell to around RMB 17,000/mt after opening slightly higher, #0 zinc was traded near RMB 16,900/mt, with discounts of negative RMB 80-100/mt against SHFE 1110 zinc contract prices. #1 zinc was traded at RMB 16,850/mt. Cargo-holders moved goods aggressively, but buying interest was low given tightening cash flows at month’s end, keeping overall trading sentiment muted. Similarly, some smelters became more willing to move goods due to tight cash flows, but they only supplied goods to north China, with quotations high, so transactions were limited as well.
The Federal Reserve Chairman Bernanke did not announce the QE3 last Friday, but the market is still expecting possibilities of QE3 implementation. China’s central bank ordered commercial banks to include their margin deposits in required reserves to mop up excessive liquidity.
With regard to zinc price trends this week, 80% market players believe that SHFE three-month zinc contract prices will find support at RMB 17,000/mt level, moving between RMB 17,000-17,500/mt. The Fed Chairman Bernanke did not announce any quantitative easing policies but said the Fed’s September meeting will be extended to two days, rather just one day previously set, so as to make other stimulus plans, triggering market optimism. As spot inventories are being consumed and smelters have been holding goods, goods supply available is tight, causing spot discounts to narrow to a low band. A large volume of warrants were released to add to spot goods supply, so zinc prices should edge up as cargo holders are holding prices firm.
The remaining 20% believe that SHFE three-month zinc contract prices will continue struggling at RMB 17,000/mt level. Any possibility of QE3 announcement will influence the market temporarily. China’s central bank order to enlarge requirement reserves will drain cash flows from the market. Downstream buying interest is low as zinc prices are close to their costs, while some smelters are moving goods modestly in the face of capital pressure. Transactions will unlikely improve notably this week, with SHFE three-month zinc contract prices moving between RMB 16,800-17,200/mt, and spot zinc prices struggling around RMB 17,000/mt.