SHANGHAI, Mar. 6 (SMM) -- SHFE three-month zinc contract prices opened higher at RMB 16,115/mt on Monday, but later slipped following LME zinc price trends due to negative economic news from Europe last weekend. According to the report delivered by Premier Wen Jiabao at the annual session of the National People's Congress (NPC) on Monday morning, China lowered its GDP growth target in 2012 to 7.5%. This is the first time for the Chinese government to lower its economic growth target after keeping it around 8% for seven consecutive years. In response, SHFE three-month zinc contract prices fell to test RMB 16,000/mt, with prices finally closing at RMB 16,020/mt, down RMB 20/mt. Trading volumes fell by 53,584 lots to 82,456 lots, while positions decreased by 7,748 lots to 156,486 lots.

In the spot market, as SHFE three-month zinc contract prices fell back to RMB 16,000/mt, discounts of #0 zinc were between RMB 300-350/mt. More traders made purchases, but as hedge trading was locked, market supply of registered brands was tight, with #0 zinc traded between RMB 15,700-15,750/mt and #1 zinc traded around RMB 15,650/mt. Market inquiries were active, but transaction volumes were limited.

The NPC and CPPCC take place this week, and domestic situation is steady. But mixed economic data in Europe and the US allowed the market to fluctuate.

With regard to zinc price trends, 50% of market players believe zinc prices should fall below RMB 16,000/mt level. Economic growth will slow as economic growth target was reduced at the NPC and CPPCC, while crisis in the euro zone will likely breakout anytime. Bernanke stated QE3 would not be needed recently, while easing monetary policies failed to boost US economy and employment rate. As a result, LME zinc prices moved between USD 2,050-2,100/mt, and weak domestic consumption is also a factor weighing down zinc prices. Zinc prices resisted increases due to low downstream buying interest, and SHFE three-month zinc contract prices should fall to move between RMB 15,800-16,000/mt, with spot discounts narrowing RMB 300-350/mt.

33% market players believe zinc prices should continue to fluctuate. SHFE three-month zinc contract prices should move between RMB 16,000-16,200/mt, with spot discounts remaining between RMB 350-400/mt.

The remaining 17% think SHFE three-month zinc contract prices should try to breakthrough RMB 16,300/mt.The market is optimistic towards results from the NPC and CPPCC, expecting more positive news as domestic economic growth slowed. On the other hand, productions at zinc-related enterprises were hampered, while imported zinc was consumed and will not arrive in the short term, so demand for domestic zinc will improve, giving support to zinc prices. In this context, SHFE three-month zinc contract prices should rise to move between RMB 16,000-16,300/mt, with spot discounts expanding to RMB 400-450/mt.