SHANGHAI, Feb. 7 (SMM) -- Boosted by strong LME zinc prices last Friday, SHFE three-month zinc contract prices opened significantly higher at RMB 16,155/mt and then moved narrowly around the daily moving average. SHFE three-month zinc contract prices fell slightly to RMB 16,105/mt in the midday due to strong short selling pressures, but the entrance of long investors provided support for SHFE zinc prices, with prices finally closing at RMB 16,195/mt, up RMB 245/mt or 1.54%. Trading volumes fell by nearly 70,000 lots to 160,068 lots, while positions decreased by 4,264 lots to 159,708 lots.
In the spot market, as SHFE three-month zinc contract prices opened significantly higher, spot discounts expanded. Discounts of domestic #0 zinc were between RMB 320-350/mt over SHFE three-month zinc contract prices, with traded prices between RMB 15,800-15,850/mt, and deals at the high-end price were limited. Since downstream consumers have not fully resumed operation and markets were cautious toward current high prices, #1 zinc was traded near RMB 15,750/mt, with overall trading activity quiet.
With regard to zinc price trend this week, 60% of market players are optimistic, believing SHFE three-month zinc contract prices will rise further this week. Chinese Premier Wen Jiabao said China may participate in resolving European debt crisis, and US data shows that the US economy shows signs of improving. In addition, the gradual production restarts at downstream consumers after February 6th will provide some support for spot zinc prices. Therefore, LME zinc prices are expected to break through USD 2,200/mt, moving between USD 2,200-2,260/mt. SHFE three-month zinc contract prices will rise further to RMB 16,200-16,800/mt, while spot discounts will expand to RMB 400-500/mt, leaving the arbitrage window open.
20% of market players believe zinc prices will continue to fluctuate this week. Although macroeconomic news shows signs of improving, downstream demand remains weak, so any upward momentum in SHFE three-month zinc contract prices will be limited this week. LME zinc prices are expected to hover between USD 2,150-2,200/mt, while spot discounts will move between RMB 300-400/mt over SHFE three-month zinc contract prices.
The remaining 20% believe zinc prices may fall further this week, believing LME zinc prices may fall to USD 2,100/mt, SHFE three-month zinc contract prices may drop to RMB 15,500-15,800/mt and spot discounts will likely narrow to RMB 200-300/mt given a lack of progress in Greek debt restructuring talks.