SHAGNHAI, Jan. 10 (SMM) -- On Monday, SHFE three-month zinc contract prices opened lower at RMB 14,700/mt, and dipped to RMB 14,575/mt in the morning session, dragged down by the Shanghai Composite Index and shorts selling off assets. Supported by improving downstream buying interest, SHFE three-month zinc contrct prices rallied to the moving average and finally closed at RMB 14,740/mt, up RMB 45/mt. Trading volumes decreased by nearly 70,000 lots to 214,864 lots, and total position decreased by 12,452 lots to 213,386 lots.
In domestic spot markets, spot discounts did not narrow as SHFE three-month zinc contract prices plunged and then rallied. #0 zinc was traded between RMB 14,500-14,550/mt, with discounts of RMB 120-150/mt against SHFE three-month zinc contract prices. Imported zinc was still quoted RMB 180/mt below domestic prices. #1 zinc was traded between RMB 14,450-14,500/mt. The market was cautious ahead of the release of China's CPI, with transactions quiet.
The market did not increase purchases two weeks ahead of the Chinese New Year holiday, with zinc prices continuing to fall and market confidence depressed.
With regard to zinc price trends for this week, 60% believe zinc prices should move between RMB 14,500-15,000/mt. With the exception of speculations China's CPI will continue to fall, there is not positive news. Despite positive US non-farm employment data, debt problems exist, so zinc prices will likely rise. Downstream demand is low, while market confidence was depressed, with any purchases limited. Costs are the only factor supporting zinc prices for now. Zinc prices have been fluctuating around RMB 14,500/mt level, and smelters will actively place orders once LME zinc prices are around USD 1,800/mt. As such, LME zinc prices should move between USD 1,800-1,880/mt this week, and SHFE three-month zinc contract prices will fluctuate between RMB 14,500-15,000/mt, with spot discounts between RMB 50-200/mt.
30% market participants believe zinc prices will likely fall, with SHFE three-month zinc contract prices dipping to RMB 14,000/mt level. A large sum of debt of Greece is due in March, while French credit rating is likely to be downgraded, and China's real estate loans are due recently, so market confidence was significantly depressed. LME zinc prices are likely to fall to USD 1,800/mt. SHFE three-month zinc contract prices should fall to RMB 14,000/mt level, with spot discounts narrowing to RMB 0-50/mt.
The remaining 10% think SHFE three-month zinc contract prices should touch RMB 15,000/mt level. Speculations domestic cash flow will loosen and China's Central Bank will cut deposit reserve ratio allow them to believe LME zinc prices will touch USD 1,900/mt level, and SHFE three-month zinc contract prices should touch RMB 15,000/mt, with spot discounts expanding to RMB 100-250/mt.