SMM Daily Review - 2012/3/12 Zinc Market

SHANGHAI, Mar. 13 (SMM) -- SHFE three-month zinc contract prices fell continuously to test the 5-day moving average after opening higher at RMB 15,950/mt on Monday. Prices began to move higher in the midday, but the lack of upward momentum caused prices to lose previous gains after hitting RMB 15,890/mt. Later, prices climbed in response to strengthening Shanghai Composite Index, with prices finally closing at RMB 15,900/mt, up RMB 60/mt. Trading volumes fell by 3,880 lots to 144,162 lots, while positions increased by 4,936 lots to 158,274 lots.

In the spot market, as SHFE three-month zinc contract prices fell gradually after opening higher, discounts of #0 zinc held between RMB 300-350/mt against SHFE 1206 zinc contract prices, with traded prices between RMB 15,500-15,550/mt. #1 zinc was traded between RMB 15,450-15,500/mt. Spot traded prices climbed slowly, but downstream buying interest was low. Traders were firm with low discounts, keeping overall trading activity quiet.

With regard to zinc prices this week, a majority of 64% market players believe SHFE three-month zinc contract prices should fluctuate, with pressure at RMB 16,300/mt and support at RMB 15,800/mt. Greek debt exchange plan has stalled, and US non-farm employment figure was positive, so investors will gain confidence to buy risk assets. LME zinc prices should move between USD 2,050-2,150/mt. China’s CPI released last week shows domestic inflation is still under control, while positive speculations of the NPC and CPPCC will also support SHFE zinc prices. Downstream buying interest was strong when spot zinc prices were at low levels, which means strong support. SHFE three-month zinc contract prices should move between RMB 15,800-16,300/mt, with spot discounts between RMB 300-400/mt.

23% investors believe SHFE three-month zinc contract prices should fall further. Despite Greek debt exchange plan stalled, many problems exist in euro zone countries, and economies recover slowly. In this context, LME zinc prices should fall to USD 2,000-2,050/mt. Any possibility that China will further loosen monetary policies is limited according to the NPC and CPPCC progress, and SHFE zinc will unlikely gain sufficient cash flow, combined with high inventories at smelters, zinc prices will be weighed down. As a result, SHFE three-month zinc contract prices should move between RMB 15,500-15,800/mt, with discounts narrowing between RMB 200-300/mt.

The remaining 13% believe zinc prices should rise. SHFE zinc prices will gain support as spot demand improved as 2Q nears. SHFE three-month zinc contract prices should break through RMB 16,300/mt level and move between RMB 16,300-16,600/mt, with discounts expanding to RMB 400-500/mt.