SHANGHAI, Nov. 15 (SMM) -- Boosted by positive news from Europe and the US last weekend, SHFE three-month zinc contract prices fluctuated higher following LME zinc price trends after opening higher at RMB 15,045/mt on Monday. A large number of short investors exited the market, while long investors built positions. As a result, SHFE zinc prices were prompted to break through the 40-day moving average, with prices gradually climbing to as high as RMB 15,590/mt, but pressures were found at RMB 15,600/mt. Later, SFHE three-month zinc contract prices fell slightly, with prices edging higher gradually along with the daily moving average at the tail of trading and finally closing at RMB 15,430/mt, up RMB 700/mt. Trading volumes increased by 70,950 lots to 344,610 lots, while positions fell by 14,676 lots to 185,264 lots. 

In spot markets, as SHFE zinc prices opened significantly higher above the 20-day moving average on Monday, traded prices for #0 zinc were between RMB 15,100-15,200/mt. Later, as SHFE zinc prices climbed continuously, breaking through the 5-day, 10-day and 40-day moving averages consecutively and even hitting a high of RMB 15,590/mt, spot discounts rose from zero to negative RMB 40-50/mt against SHFE 1201 zinc contract prices in response. Mainstream traded prices for #0 zinc were between RMB 15,250-15,350/mt, with sparse deals made below RMB 15,200/mt. Traders made purchases actively due to widening spot discounts and market optimism, while smelters also became more willing to move goods amid rising zinc prices, keeping trading sentiment brisk. 

With regard to zinc price trends this week, 50% market players believe that zinc prices should edge up, with SHFE three-month zinc contract prices touching RMB 16,000/mt. Italian Senate passed the budget bill for 2012 including new credit tightening measures last Friday, while Italy’s prime minister finally stepped down. The market gave an optimistic expectation to the credit tightening policies by the new government, although Italy was caught in mass sovereign debt, its economic structure is more active compared to Greece, and is more affordable to the debt, so concerns over Italy’s debt crisis will east. On the other hand, Papademos was sworn in Greek parliament on November 11th, and the market is optimistic towards the former vice president of European Central Bank. US CCI for November was 64.2, better than the forecasted 61.5. The good news boosted market risk appetite, so the US dollar index should fall to 76 next week, pushing up LME zinc prices to break through USD 2,000/mt level. SHFE three-month zinc contract prices should touch as high as RMB 16,000/mt along with LME zinc prices, moving between RMB 15,400-16,000/mt. Spot discounts should expand, with spot prices between RMB 15,300-15,700/mt.

37% market players are neutral, believing SHFE three-month zinc contract prices should fluctuate between RMB 15,000-15,600/mt. The growth of China’s new credit loans in October was better than forecasts, so demand for commodity will increase to boost market confidence. Besides, progress has been made in resolving European debt crisis. In this context, SHFE three-month zinc contract prices should rise to stand steadily at RMB 15,000/mt level. But downstream buying interest will weaken as zinc prices rose, while smelters will begin to move goods, causing goods supply available in the market to increase, weighing down zinc prices. In this context, SHFE three-month zinc contract prices should move between RMB 15,000-15,600/mt, with spot discounts between negative RMB 10-50/mt.

The remaining 13% are pessimistic, thinking zinc prices should fall to struggle between RMB 14,500-15,000/mt. Good news reported from Europe will be absorbed by the market, while Italy’s debt crisis is still remaining unresolved. The future of Europe is subject to Italy’s new prime minister’s operation. Other European countries will be unable to bailout Italy if the same scenario happens in Italy as in Greece, Ireland and Portugal. Uncertainty over Greek problems will depress investors’ confidence. The US dollar index should find support at 76, and LME zinc prices will fall to USD 1,860-1,940/mt. SHFE three-month zinc contract prices will fall to move between RMB 14,500-15,000/mt, tracking LME zinc prices.