SHANGHAI, Sept. 27 (SMM) -- SHFE three-month zinc contract prices opened lower at RMB 14,965/mt on Monday, with prices mainly moving around RMB 15,000/mt in the morning session and struggles between long and short positions intense. A stronger US dollar in the midday caused LME zinc prices to fall again, and SHFE three-month zinc contract prices plummeted immediately after opening in the afternoon session, with prices again setting a new low. Long investors exited the market, and short investors sold off positions, with SHFE zinc prices even falling by the daily price limit. Finally, SHFE three-month zinc contract prices closed at RMB 14,340/mt, down RMB 920/mt. Trading volumes decreased by over 3,000 lots to 587,122 lots, while positions increased by 15,446 lots to 230,142 lots.
In spot markets, as SHFE three-month zinc contract prices dipped, spot zinc prices fell slightly in response, but spot discounts narrowed further. Traded prices for #0 zinc were between RMB 15,050-15,100/mt, and most deals were made at the low-end, with discounts against SHFE 1112 zinc contract prices only negative RMB 20-0/mt. Traded prices for #1 zinc were between RMB 15,000-15,050/mt. Market trends were unclear, and buying interest was low as well. Downstream processors subsequently exited the market as SHFE zinc prices tumbled. Market quotations were mixed, with quotations generally at premiums of positive RMB 100-150/mt against SHFE 1111 zinc contract prices, but no transactions were made.
Last week, the US Federal Reserve decided not to implement QE3, significantly depressing market confidence, and pushing up the US dollar index to 78. Both LME and SHFE zinc prices hit new lows for the year, and market players are all pessimistic towards zinc price trends this week.
60% believe that zinc prices will fluctuate at low levels, and will not fall sharply. SHFE three-month zinc contract prices should struggle between RMB 14,500-15,000/mt, with spot prices close to or higher than SHFE three-month zinc contract prices. There is no positive economic news, but on the other hand, downstream buyers will increase purchases ahead of China’s National Day holiday at lower prices, and smelters are unwilling to sell goods since production costs are much higher than spot prices, so goods supply available is only from arbitragers. As a result, zinc prices will be supported by spot markets, and will not fall sharply.
40% believe zinc prices should fall further, with SHFE three-month zinc contract prices moving between RMB 13,800-14,300/mt. Spot premiums should be around positive RMB 100/mt. Given current economic situation, downstream buyers will purchase modestly due to cash problems at the end of the month, and although smelters are still reluctant to sell goods, inventories available in the market are still at high levels, so spot demand is not able to support zinc prices.