SHANGHAI, Apr. 17 (SMM) -- SHFE three-month zinc contract prices opened lower at RMB 15,370/mt on Monday negatively affected by weak LME zinc prices last Friday, with prices generally moving between RMB 15,350-15,400/mt during the day. SHFE three-month zinc contract prices slid to RMB 15,300/mt at the tail of trading, but large amounts of buying at lower prices helped prices rally and finally close at RMB 15,345/mt, down RMB 265/mt or 1.7%. Trading volumes increased by nearly 20,000 lots to 168,640 lots, while positions increased by 12,262 lots to 188,412 lots.
In the spot market, as SHFE three-month zinc contract prices opened significantly lower on Monday, spot discounts narrowed rapidly. #0 zinc was traded near RMB 15,200/mt at discounts of RMB 200/mt against SHFE 1207 zinc contract prices, while #1 zinc was traded between RMB 15,150-15,170/mt. Market supply was not sufficient before the delivery date, since falling zinc prices caused smelters to become more reluctant to sell goods. Hedged zinc came into the market, stimulating downstream buying interest, but deals were limited due to a lack of market confidence.
With regard to zinc price trends this week, 60% of market players believe SHFE three-month zinc contract prices should fall to RMB 15,200/mt. China’s GDP growth in 1Q shows slow economic growth, while Italian and Spanish debt crisis re-erupted, and the implementation of US QE3 is not determined. As such, LME zinc prices should dip to USD 1,950/mt. Downstream demand did not turn around despite 2Q is the traditional high demand period, with high inventories in both LME and domestic spot markets. Spot prices should be close to or RMB 100/mt below SHFE three-month zinc contract prices.
20% investors believe SHFE three-month zinc contract prices should stabilize between RMB 15,400-15,600/mt. There is still possibility of QE3 implementation, and the IMF urging bailout for the euro zone will also increase market confidence, so LME zinc prices should stabilize between USD 1,960-1,970/mt. Smelters are holding goods as zinc prices dropped, and domestic cash flows are sufficient, but goods supply in the market is tight, so spot prices are firm. Lower prices will cause traders to actively purchase goods. As such, SHFE three-month zinc contract prices should stabilize between RMB 15,400-15,600/mt, with spot discounts remaining between RMB 100-200/mt.
The remaining 20% believe SHFE three-month zinc contract prices should rally to RMB 15,600-15,800/mt. Zinc prices have been falling since early last week, while LME zinc prices also fell below USD 2,000/mt mark, so traders will actively place orders. The US dollar index will fall after rising to 80, and LME zinc prices are expected to rebound to USD 1,980-2,000/mt. SHFE three-month zinc contract prices should rally to RMB 15,600-15,800/mt, and discounts should expand to RMB 200-300/mt.