Metals News
SMM Daily Review – 2012/5/14 Zinc Market
smm insight
May 15,2012

Shanghai, May 15 (SMM) – SHFE three-month zinc contract prices opened at RMB 15,195/mt on Monday. Domestic stocks market dropped after opening after digesting the news of the reduction in the reserve requirement ratio by China’s central bank. As a result, the most actively-traded zinc prices in the SHFE market slid below RMB 15,000/mt to RMB 14,910/mt. Supported by buying activities at lows, SHFE zinc prices returned RMB 15,000/mt. Finally, SHFE three-month zinc prices finished at RMB 14,970/mt, down RMB 225/mt, or a drop of 1.48%. Trading volumes were up more than 2,000 lots to 146,478 lots, and positions were up 3,766 lots to 170,570 lots.

In the spot market, prices were firm despite of losses in the SHFE zinc market. Spot discounts of #0 zinc narrowed to RMB 80-100/mt over SHFE 1208 zinc contract prices, with deals between RMB 14,950-14,980/mt. Prices of #1 zinc held at RMB 14,950/mt due to limited supply. The diving SHFE zinc prices stimulated downstream buying interest, but market supply was not sufficient, resulting in brisk inquiries only.

China’s central bank announced last Saturday it will cut deposit reserve ratio starting May 18th. But SHFE zinc prices opened slightly higher and plunged to RMB 15,000/mt level on Monday.

70% of market players believe SHFE zinc prices should dip to a new low for the year between RMB 14,700-14,900/mt this week. Major economies are faced with difficulties, while Spain’s government bond yields remain high, and Greece’s coalition government is expected to collapse. Despite US CCI released last Friday was positive, its PPI fell for the first time since December 2011, combined with LME inventories a high 930,000 mt, the US dollar index should move between 80.0-80.5. LME zinc prices should fall to USD 1,900-1,920/mt. Despite China’s central bank will lower deposit reserve ratio, positive news have been released, so the market is concerned over domestic economic situation. In addition, consumption in 2Q grows slowly, and domestic spot zinc inventories are high. In this context, SHFE three-month zinc contract prices should fall to RMB 14,700-14,900/mt, with spot discounts narrowing to RMB 50-80/mt.

20% believe SHFE three-month zinc contract prices should struggle at the RMB 15,000/mt. Despite negative economic environment and market concerns, some smelters will place orders due to lower LME zinc prices. The US dollar index has stood at 80, meeting resistance at the level. LME zinc prices should move between USD 1,920-1,950/mt. But spot prices will be well supported. Although inventories are high, goods supply available in the market is tight as smelters are holding goods, with spot prices resisting declines. Arbitragers released goods modestly due to low discounts. As such, SHFE three-month zinc contract prices should move between RMB 14,900-15,200/mt, with spot discounts between RMB 80-120/mt.

The remaining 10% believe due to favorable SHFE/LME zinc price ratio, arbitragers will actively purchase goods, pushing to LME zinc prices to USD 1,950-1,980/mt. on the other hand, cash will flow to the futures markets due to loosening monetary policies and constraints in the real estate sector, SHFE three-month zinc contract prices should rally to RMB 15,200-15,500/mt, with spot discounts between RMB 120-150/mt.

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SHFE zinc market
LME zinc market
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