SMM Daily Review - 2012/2/13 Zinc Market

SHANGHAI, Feb. 14 (SMM) -- SHFE three-month zinc contract prices opened lower at RMB 15,950/mt negatively affected by weak LME zinc prices last Friday, with prices falling to RMB 15,900/mt before returning to the daily moving average. SHFE three-month zinc contract prices rebounded to RMB 16,100/mt in the midday driven up by strengthening Shanghai Composite Index and the entrance of long investors, with prices later gradually losing previous gains and finally closing at RMB 15,995/mt, down RMB 175/mt or 1.08%. Positions for SHFE 1205 zinc contract increased by 15,364 lots to 108,510 lots.

In the spot market, as SHFE three-month zinc contract prices fell below RMB 16,000/mt, spot discounts for domestic registered brands narrowed. #0 zinc was traded at discounts of RMB 220-240/mt over SHFE three-month zinc contract prices, while imported zinc and #1 zinc were traded at discounts of RMB 350-400/mt, with traded prices moving between RMB 15,600-15,650/mt. Only domestic registered brands were attractive to market players as the delivery date neared, and downstream consumers were cautious toward buying.  

With regard to zinc price trends this week, 50% of market players believe SHFE three-month zinc contract prices will struggle around RMB 16,000/mt, moving between RMB 15,800-16,200/mt, with discounts between RMB 300-400/mt. Greek problem has eased, while US economic data was also positive. In this context, LME zinc prices are expected to move between USD 2,100-2,200/mt. Although downstream enterprises restarted production following the Lantern Festival, demand improved slowly, combined with large amounts of imported zinc with lower prices than domestic zinc prices, imported zinc squeezed downstream demand. The imported zinc prices have been at low levels due to high profit margins, so SHFE zinc prices resist increases.

30% of market players believe zinc prices should fall below RMB 15,800/mt. Discounts of only registered brands remained low, while discounts of non-registered and imported zinc were adjusted to attract buyers. Discounts will expand after SHFE zinc contracts are delivered this week, and SHFE three-month zinc contract prices will fall as shorts sell off goods. LME zinc prices are expected to fall below USD 2,050-2,100/mt, and SHFE three-month zinc contract prices will move between RMB 15,500-15,800/mt, with discounts narrowing to RMB 200-300/mt.

The remaining 20% believe zinc prices should stand above RMB 16,000/mt. Greek problem has eased, and euro zone issue no longer dominates the market. Premier Wen’s statement boosted market confidence, causing speculations of interest rates cut to improve. In domestic spot markets, spot demand improved as downstream enterprises returned to the market. LME zinc prices should move between USD 2,200-2,250/mt, SHFE three-month zinc contract prices will rise to RMB 16,300-16,600/mt, with discounts expanding to RMB 400-500/mt.