Shanghai, Apr. 24 (SMM) - On Monday, SHFE three-month zinc contract prices opened slightly higher above the 20-day moving averages following strong movements in the LME zinc market last Friday. But, the most actively-traded zinc contract in the SHFE market drifted lower due to falling domestic equities, falling below the 20-day moving averages. The preliminary HSBC China’s manufacturing data for April came in at 49.1, up from the prior level of 48.3, but remained below 50%. As a result, SHFE zinc market kept falling, and tried to find support at the 5-day moving averages. Finally, SHFE three-month zinc prices finished at RMB 15,480/mt, down RMB 15/mt. Trading volumes were up nearly 20,000 lots to 111,288 lots, and positions were up 386 lots to 185,062 lots, mainly short ones.
In the spot market, discounts of #0 over SHFE three-month zinc prices ranged between RMB 180-200/mt, as smelters remained unwilling to move goods, and deals were made in the RMB 15,330-15,350/mt range. Transactions were RMB 15,280-15,300/mt for #1 zinc. With tight cash flow near the end of the month, downstream producers showed low interest in buying, while traders also suffered the same problem, resulting in quiet trading.
The Spain’s debt issues have been escalating since last week, and China’s preliminary manufacturing PMI data from HSBC for April remains below 50%, both triggering market worries.
With regard to zinc price trends this week, 40% market players believe zinc prices should fluctuate around RMB 15,500/mt mark. Despite HSBC China’s PMI for April rose, it still shows the gloomy manufacturing industry and domestic demand for metal will barely improve. Due to the cash flow problems and invoice factors at the end of the month, spot markets should be constrained. LME zinc prices will meet resistance at USD 2,030/mt and find support at USD 1,980/mt; SHFE three-month zinc contract prices should meet resistance at RMB 15,600/mt level, with solid support at RMB 15,400/mt and spot discounts struggling around RMB 200/mt.
Another 40% believe zinc prices should continue to rebound to the 20-day moving averages, touching RMB 15,800/mt. Ahead of the opening of US Federal Reserve’s policy meeting, the market expect US will maintain ultra low interest rate policy. The US GDP in 1Q and core personally consumption data will be released, with market speculation that it will boost the market. As such, LME zinc prices should rise to USD 2,030-2,050/mt. SHFE three-month zinc contract prices should edge up to RMB 15,600-15,800/mt and with spot discounts expanding to RMB 200-300/mt.
The remaining 20% believe SHFE zinc prices should stop rebounding and dip again below the 5-day moving averages. With the exception of negative HSBC China’s PMI, European debt crisis re-erupted, especially Spanish government bond yields have remained high, while problems in the banking sector of Italy also spur concerns. In this context, LME zinc prices should fall below USD 1,950-1,980/mt; the Shanghai Composite Index has been climbing for several consecutive days to meet resistance at 2,400, combined with cash flow problems, it should fall. As a result, SHFE three-month zinc contract prices should fall to RMB 15,300-15,400/mt, with spot discounts narrowing to RMB 100-200/mt.