Shanghai, Jun. 19 (SMM) - SHFE three-month zinc prices on Monday climbed above the previous price band, as the result of second round of election in Greece eased investors’ concerns. SHFE 1209 zinc contract prices opened high at RMB 14,980/mt, and rose all the way to hit a recent high of RMB 15,130/mt. Depressed by sell-offs at highs, the zinc contract prices fell back to the RMB 14,910-15,000/mt range. In the afternoon session, SHFE zinc market followed domestic stocks markets, with weak movements reported. Finally, SHFE three-month zinc contract prices closed at RMB 14,980/mt, up 110/mt or a gain of 0.74%. Trading volumes were up 5,380 lots to 67,080 lots, and positions were down 5,374 lots to 152,618 lots.
In the spot market, spot discounts of 0# zinc over SHFE 1209 zinc prices, the most actively-traded contract were between RMB 110-120/mt, and deals were mainly done at RMB 14,890/mt. With falling prices in the SHFE zinc market, spot discounts of #0 zinc over SHFE three-month zinc prices narrowed to RMB 100/mt, with transactions mainly between RMB 14,840-14,860/mt. Quotations for #1 zinc ranged from RMB 14,810/mt to RMB 14,840/mt. Spot zinc prices followed rising SHFE zinc prices on Monday, with small gains reported, helping improve smelters’ interest in sales, and traders remained active in moving goods. Downstream producers, however, stayed away from the market after price rose, leading to limited deals. Transactions were mainly made among traders. A strong wait-and-see attitude dominated the market, and overall trading was quiet.
The Democratic Party supporting credit tightening policies won the second round of election in Greece, easing market concerns. As a result, SHFE three-month zinc contract prices opened higher but moved lower.
With regard to zinc price trends this week, 67% of market players believe that zinc prices should continue to rebound and stand at RMB 15,000/mt level. Easing Greek problems boosted market confidence, and large numbers of buyers also pushed up zinc prices. On the other hand, the G20 summit and EU summit will take place. Given negative US CCI and manufacturing data, speculations that the US Federal Reserve will implement QE3 grow, and Goldman Sachs predicts the Fed will release QE3 this week. In this context, LME zinc prices should move between USD 1,910-1,930/mt. China’s central bank lowered deposit reserve ratio and interest rates previously, so loosening liquidity will give support to production. Besides, some property markets were loosened, with discounts of 85% for purchasing loans of the first home. As such, SHFE three-month zinc contract prices should be pushed up to RMB 15,100-15,300/mt, with discounts expanding to RMB 120-140/mt.
The remaining 33% believe zinc prices will rebound limitedly, and SHFE three-month zinc contract prices will meet resistance at the RMB 15,000/mt level. Despite Greece’s general election result turned out positive, European debt crisis has spread to Spain and Italy. Especially Spanish government bond yields continued to surge since last week, causing concerns to shift to Spain. On the other hand, although Greece will remain in the euro zone, it has to cut financial spending to gain further bailout funds. In this scenario, LME zinc prices should move between USD 1,880-1,910/mt. In domestic spot markets, some smelters could not wait to sell inventories once spot zinc prices rose to RMB 14,800/mt, limiting zinc price rebounds. Zinc prices will meet resistance as end users cut output as the summer sets in, while resistance of spot price increases will cause discounts to expand and arbitrage opportunity, allowing investors to purchase spot goods and sell futures contracts. As a result, SHFE three-month zinc contract prices should move between RMB 14,900-15,100/mt, with spot discounts between RMB 90-120/mt.