SMM Daily Review - 2012/4/9 Zinc Market

SHANGHAI, Apr. 10 (SMM) -- SHFE three-month zinc contract prices opened slightly higher at RMB 15,750/mt on Monday in the absence of direction from LME zinc market, but later fell rapidly to the daily moving average due to higher Chinese CPI growth in March, with prices generally moving between RMB 15,600-15,650/mt. As SHFE copper prices rebounded strongly in the midday, SHFE three-month zinc contract prices climbed to hit RMB 15,780/mt given the entrance of long investors and strong short selling pressures at the 20-day moving average, with prices mostly hovering between RMB 15,700-15,750/mt in the afternoon session. SHFE three-month zinc contract prices gradually lost previous gains at the end of trading, with prices finally closing at RMB 15,635/mt, up RMB 95/mt. Trading volumes increased by nearly 40,000 lots to 211,916 lots, while positions decreased by 6,462 lots to 171,476 lots.  

In the spot market, #0 zinc was traded between RMB 15,250-15,300/mt at discounts between RMB 300-320/mt against SHFE three-month zinc contract prices. As SHFE zinc prices climbed, spot discounts expanded gradually to RMB 320-350/mt, and traded prices even rose to RMB 15,400-15,450/mt, but deals at the high end prices were very limited. #1 zinc was traded between RMB 15,200-15,250/mt, and no deals of #1 zinc were heard after SHFE zinc prices edged higher. 

With regard to zinc price trends this week, 50% market players believe SHFE three-month zinc contract prices should move between RMB 15,500-15,700/mt. slower recovery of manufacturing industries caused concerns of investors, and unemployment rate in euro zone rose slightly, while Spanish government bond yields were higher. US non-farm employment rate was disappointing, and China’s CPI rose in March, causing the US dollar index to rebound to 80. LME zinc prices meet resistance at USD 2,030/mt, and will allow domestic smelters to place orders below USD 2,000/mt. LME zinc prices are expected to move between USD 2,000-2,020/mt. domestic cash flow problems eased in March, so smelters are not selling off goods at lower prices, giving support to spot prices, and downstream buying interest is high. As such, SHFE three-month zinc contract prices should move between RMB 15,500-15,700/mt, and spot discounts should be between RMB 300-350/mt.

30% believe SHFE three-month zinc contract prices should rally to RMB 15,700-15,900/mt. The US dollar index met resistance at 80, and will fall this week. LME zinc prices will find support at USD 2,000/mt due to strong demand from smelters. LME zinc prices should move between USD 2,020-2,050/mt. As Danxia Smelter is still closed, spot inventories fell, causing domestic supply surplus to ease, combined with smelters holding goods at lower prices, goods supply available in the market is not as sufficient as before. As such, SHFE three-month zinc contract prices should rally to RMB 15,700-15,900/mt, with spot discounts expanding to RMB 350-400/mt.

The remaining 10% believe SHFE three-month zinc contract prices should fall to RMB 15,200-15,500/mt. due to disappointing US non-farm employment data and impossibility of QE3, as well as worse-than-expected result of government bond auction in European countries, LME zinc prices should dip to USD 1,970-2,000/mt. China will not cut deposit reserve ratio in the near term as oil and consumer goods prices rose significantly, while market confidence is depressed due to weak downstream consumption. In this context, SHFE three-month zinc contract prices should fall to RMB 15,200-15,500/mt, with spot discounts narrowing to RMB 250-300/mt.