SHANGHAI, Jun. 12 (SMM) -- On Monday, SHFE 1209 zinc contract prices opened higher at RMB 14,835/mt and touched an intraday high of RMB 14,980/mt, but then dropped to move below the moving average during the morning session. As the Shanghai Composite Index rose, SHFE 1209 zinc contract prices were up slightly, fluctuating between RMB 14,870-14,900/mt, and finally closing at RMB 14,885/mt, up RMB 155 or 1.05%. Trading volumes increased by 11,254 lots to 94,212 lots, and total position decreased by 3,314 lots to 167,264 lots.
In domestic spot markets, discounts of #0 zinc against SHFE three-month zinc contract prices were RMB 120/mt, with traded prices between RMB 14,810-14,820/mt. As SHFE zinc prices inched down, discounts of #0 zinc narrowed to RMB 70-100/mt, with traded prices between RMB 14,790-14,800/mt. #1 zinc was quoted between RMB 14,750-14,780/mt. Smelters and traders were moving goods actively due to higher prices, while downstream buyers only purchased as needed, leaving transactions modest.
Market concerns eased as Spain's banking sector received EUR 100 billion of bailout funds, combined with China's positive CPI, zinc prices rebounded Monday.
70% investors believe zinc prices should remain fluctuating in a wide band this week, with SHFE three-month zinc contract prices between RMB 14,700-15,000/mt. The result of Greece's general election is expected to decide whether Greece will exit euro zone, with the market cautious. Besides, despite Spain received bailout funds, it is unclear if the crisis of its banking sector will grow. High US unemployment rate and US Federal Reserve Chairman not mentioning any possibility of QE3 implementation will allow the US dollar index to hover around 82, with LME zinc prices fluctuating between USD 1,870-1,900/mt.
China's central bank lowered interest rates, while China's May CPI shows easing inflation. With soft consumption and sliding economy, the market expects China will release stimulus policies. In domestic spot markets, smelters increased goods supply, while rising SHFE/LME zinc price ratio allowed imported zinc to flow to domestic spot markets. On the other hand, downstream consumption weakened apparently in the seasonally low demand period for zinc. In the context, SHFE three-month zinc contract prices should move between RMB 14,700-15,000/mt this week, with spot discounts expanding to RMB 100-120/mt.
Some of the 70% are unclear of price trends this week. More stimulus policies are expected, but with weak fundamentals, zinc prices will likely drop further, so most market players are cautious.
20% of investors see zinc prices rising this week, believing prices should stand at RMB 15,000/mt level. The market will believe all negative news is released if Greece exit euro zone, and US Federal Reserve did not deny QE3 implementation, so LME zinc prices are expected to rebound to USD 1,900-1,920/mt. In domestic spot markets, spot prices will unlikely drop sharply as SHFE zinc contracts are delivered this week. On the other hand, most smelters cut output for maintenance to reduce losses. With decreasing supply, SHFE three-month zinc contract prices should move between RMB 15,000-15,100/mt this week, with spot discounts expanding to RMB 120-150/mt.
The remaining 10% believe SHFE three-month zinc contract prices should fall to RMB 14,400-14,700/mt. investors are expected to rush to the US dollars ahead of Greece's general election, so the US dollar index should rise to 82, pushing down LME zinc prices. With LME zinc inventories a high 950,000 mt, LME zinc prices are expected to move between USD 1,850-1,870/mt this week. Some imported zinc signed to arrive in June and July due to favorable SHFE/LME zinc price ratio has flowed to domestic spot markets, weighing pressure on domestic consumption. In this context, SHFE three-month zinc contract prices should fall to RMB 14,400-14,700/mt, with discounts narrowing to RMB 70-100/mt.