SMM Daily Review - 2011/11/28 Zinc Market

SHANGHAI, Nov. 29 (SMM) -- SHFE three-month zinc contract prices held steady above RMB 15,000/mt and fluctuated at high levels on Monday. SHFE three-month zinc contract prices briefly dipped to an intraday low of RMB 15,070/mt after a high open in the morning session, and later moved above the daily moving average, with prices climbing slightly to an intraday high of RMB 15,250/mt in the midday supported by rising Shanghai Composite Index. SHFE three-month zinc contract prices fluctuated between RMB 15,120-15,170/mt in the afternoon session, with prices finally closing at RMB 15,170/mt, up RMB 300/mt. Trading volumes increased by 4,612 lots to 252,174 lots, while positions fell by 9,220 lots to 194,320 lots. 

In spot markets, as SHFE zinc prices fluctuated near RMB 15,000/mt on Monday, spot zinc was quoted at a slight premium or zero discount, with traded prices for #0 zinc between RMB 15,150-15,200/mt and traded prices for #1 zinc between RMB 15,100-15,150/mt. Imported zinc enjoyed no price advantage, with prices only RMB 50/mt lower than prices for domestic #0 zinc. Since downstream buying interest was high last week when spot zinc prices were below RMB 15,000/mt, downstream consumers mostly took a cautious attitude toward purchases on Monday.

Last week, Belgium’s and Portugal’s credit ratings were downgraded, causing concerns over European debt crisis to improve, with the US dollar index touching a high 79.7 on Friday. But LME zinc prices resisted declines, falling below USD 1,900/mt and then rallied to USD 1,900/mt level.

With regard to zinc price trends this week, 54% market players believe SHFE three-month zinc contract prices should move between RMB 15,000-15,300/mt. As the European debt problem was gradually absorbed by the market, and since LME inventories continued to fall recently, with discounts also continuing to narrow, LME zinc prices should move between USD 1,880-1,950/mt. SHFE three-month zinc contract prices will fluctuate between RMB 15,000-15,300/mt, while spot prices should be between RMB 15,000-15,300/mt.

33% market players believe zinc prices will likely fall, with SHFE three-month zinc contract prices falling below RMB 15,000/mt level. Enterprises are likely to move goods to generate cash near the end of the year. Downstream buying interest is now strong given prices below RMB 15,000/mt level, while transactions will turn quiet once zinc prices return to RMB 15,000/mt level. Low downstream buying interest will not give any support to zinc prices given ongoing European debt crisis. As a result, zinc prices should fall to USD 1,830-1,880/mt this week, and SHFE three-month zinc contract prices will drop to RMB 14,400-15,000/mt. Spot prices will resist declines, with premiums remaining between RMB 100-200/mt. Downstream buying interest is expected to be strong at lower prices.

Only 13% market players predict zinc prices will rise to RMB 15,300-15,800/mt. They believe market fundamentals will improve as domestic goods supply available falls, despite negative macro news. In the meantime, domestic credit loans condition also gets better. In this context, LME zinc prices should rise to USD 1,950-2,000/mt, and SHFE three-month zinc contract prices will move between RMB 15,300-15,800/mt. Spot prices should be between RMB 15,300-15,600/mt.