SMM Daily Review - 2011/10/17 Zinc Market

SHANGHAI, Oct. 18 (SMM) -- SHFE three-month zinc contract prices opened higher at RMB 15,290/mt on Monday. The entrance of some long investors helped SHFE three-month zinc contract prices climb to RMB 15,415/mt in the morning session, but later prices fell to the daily moving average due to strong pressure at RMB 15,400/mt. As domestic stock markets weakened gradually in the midday, SHFE three-month zinc contract prices fell gradually below the daily moving average, and fell further in the afternoon session due to the exit of some long investors, with prices finally closing at RMB 15,260/mt, up RMB 30/mt. Trading volumes decreased by nearly 50,000 lots to 192,852 lots, while positions fell by 4,654 lots to 181,938 lots. 

In spot markets, as SHFE three-month zinc contract prices fell back after climbing briefly in the morning session, traded prices for #0 zinc also fell from RMB 15,350/mt in response. Traded prices for #0 zinc were between RMB 15,300-15,330/mt, with premiums against SHFE 1112 zinc contract prices zero or positive RMB 20/mt. Traded prices for #1 zinc were around RMB 15,300/mt. As zinc prices lacked upward momentum, most market players stood on the sidelines, keeping overall trading sentiment sluggish. Although SHFE zinc prices fell slightly in afternoon trading, premiums for spot zinc against SHFE 1112 zinc contract prices remained between positive RMB 20-30/mt, with transactions still weak.
 
SHFE three-month zinc contract prices generally moved between RMB 14,800-15,300/mt last week, while spot prices were close to or even higher than SHFE 1112 zinc contract prices.

With regard to zinc price trends, 40% of market players believe SHFE three-month zinc contract prices should fluctuate between RMB 15,000-15,400/mt. Slovakia passed the expansion of EFSF, while Germany and France also released statements they will come up with plans to resolve Greece’s debt crisis, helping calm market concerns over European debt crisis. Central Huijin Holding injected cash flows to domestic stock markets, while preferential policies for SMEs were being released. Besides, China’s CPI in September was lower than last month, trigger speculations that domestic monetary condition will ease. On the other hand, SMM undertook a survey to find that operating rates at smelters hit a new low, causing goods supply to fall. Meanwhile, cargo holders are unwilling to sell goods, keeping spot prices close to or higher than SHFE zinc prices. In this context, spot prices should be still higher than SHFE zinc prices, moving between RMB 15,000-15,400/mt.

40% believe that zinc prices should rise to RMB 15,400-15,800/mt. SHFE three-month zinc contract prices are expected to break through RMB 15,400/mt, while spot prices should be close to or slightly lower than SHFE zinc prices, between RMB 15,400-15,700/mt.

The remaining 20% think SHFE three-month zinc contract prices should fall slightly, moving between RMB 14,600-15,000/mt. The European debt crisis still dominates the market, despite Germany and France pledged to make plans to resolve Greece’s debt crisis. Zinc output hit a new low in September, so some smelters should increase production to meet the production target for the year in 4Q, causing supply to increase. In this context, SHFE three-month zinc contract prices should dip to RMB 14,600-15,000/mt, while spot prices should be close to SHFE three-month zinc contract prices.