SHANGHAI, Mar. 20 (SMM) -- Negatively affected by weak LME zinc prices last Friday, SHFE three-month zinc contract prices fell below RMB 16,000/mt and opened at RMB 19,915/mt on Monday. SHFE three-month zinc contract prices continued to slip during the day due to falling LME zinc prices and strong short selling pressures, with prices even dipping to as low as RMB 15,825/mt. Later, SHFE three-month zinc contract prices stabilized supported by buying at lower prices, and even reversed previous loss in the afternoon session given the exit of short investors from the market, with prices finally closing at RMB 15,875/mt, down RMB 110/mt. Trading volumes fell by nearly 50,000 lots to 125,874 lots, while positions increased by 2,494 lots to 161,652 lots.
In the spot market, as SHFE three-month zinc contract prices fell below the 5-day moving average, spot discounts narrowed noticeably. #0 zinc was traded between RMB 15,500-15,550/mt at discounts between RMB 300-350/mt against SHFE three-month zinc contract prices. Imported zinc was quoted at discounts of RMB 370/mt, while #1 zinc was traded near RMB 15,450/mt. Some cargo-holders expected spot discounts to narrow further, so they became less willing to move goods. Imported zinc enjoyed strong price advantage and dominated spot zinc markets. Overall trading activity was quiet.
With regard to zinc price trends this week, 60% of market players believe SHFE zinc prices should meet resistance at RMB 16,000/mt but find support at RMB 15,800/mt. market concerns eased as Greek debt exchange plan moves as planed, and investors confidence improved due to positive US job data. But worse-than-expected US CCI reflected slower economic growth. The US dollar index fell, and is expected to move between 79.5 and 80, with LME zinc prices expected to move between USD 2,060-2,100/mt.
Premier Wen Jiabao said last week control in house prices will continue, so domestic metal demand will remain low. Cash flow problems eased but downstream demand is progressively recovering, while inventories remain high in the market, with smelters actively moving goods at high prices. In this context, zinc prices will meet resistance at RMB 16,000/mt. But as downstream buying interest improved, prices find support at RMB 15,800/mt, with discounts between RMB 300-400/mt.
20% think zinc prices should rise further, with SHFE three-month zinc contract prices breaking through RMB 16,000/mt, meeting resistance at RMB 16,300/mt. Greek debt problem eased, and surging US dollar index also gave support to LME zinc prices at USD 2,100/mt. loosening domestic credit policies will be favorable for SMEs. Downstream demand is improving, and most zinc producers in Guangxi are closed, while Danxia Smelter is under maintenance. Spot discounts should expand to RMB 350-450/mt.
The remaining 20% believe SHFE three-month zinc contract prices should fall further to RMB 15,600/mt. Worse-than-expected US CCI shows the lack of market confidence. LME zinc prices are expected to fall between USD 2,030-2,060/mt. Spot discounts are expected to narrow to RMB 200-300/mt.