Shanghai, Jul. 3 (SMM) – SHFE 1210 zinc prices, the most actively-traded contract opened high at RMB 14,850/mt on Monday following positive news from the EU summit. Later, SHFE three-month zinc prices fell back as the shorts entered the market, and the longs exited the market after booking profits, leaving prices between RMB 14,610-14,680/mt. At the midday, SHFE zinc prices tried to make breakthrough, but failed to do so. In the afternoon session, SHFE three-month zinc prices moved between RMB 14,660-14,690/mt following the struggles between shorts and longs. Finally, SHFE three-month zinc prices finished at RMB 14,680/mt, up RMB 205/mt, or a gain of 1.42%. Trading volumes were down 90,968 lots to 144,106 lots, and positions were down 6,720 lots to 184,652 lots, with an upward momentum still available technically.
In the spot market, spot discounts of #0 zinc over SHFE 1210 zinc prices were between RMB 90-100/mt, with deals in the RMB 14,590-14,600/mt range. As SHFE zinc prices fell, spot discounts narrowed to RMB 80/mt, and transactions were concluded between RMB 14,560-14,580/mt. Quotations for #1 zinc were RMB 14,520-14,540/mt. With pessimistic outlook, some smelters moved to cash in at highs on Monday, and meanwhile traders were also active in sales. Downstream producers, however, were reluctant in purchases. As spot discounts did not expand significantly, traders also showed low buying interest. As a result, overall trading was light.
With regard to zinc price trends this week, 50% of market players believe prices will rise limitedly. Prices rebounded due to the agreement reached at the EU summit, which caused longs to enter the market, with an increase of LME zinc prices nearly 6% on Friday. But as European debt crisis will continue to plague the market, prices should struggle once positive news is absorbed. The US dollar index should rise to 82, and LME zinc prices should move between USD 1,850-1,880/mt. As the SHFE/LME zinc price ratio continued to rise due to slumping LME zinc prices, imported zinc flows to the market, weigh down domestic zinc prices. In the meantime, spot discounts expanded, allowing traders to buy spot goods and sell SHFE zinc contracts, also weighing on SHFE zinc prices. SHFE three-month zinc contract prices should move between RMB 14,600-14,900/mt, with spot discounts between RMB 60-80/mt.
30% investors believe zinc prices will fall this week. Despite positive news released from the EU summit, sluggish manufacturing sector in the euro zone will not improve in the short term. High unemployment rate in the US overshadows the market all the time. In this context, LME zinc prices should move between USD 1,810-1,850/mt. HSBC’s PMI for China in June was 48.2, and new order index hit a new low since March 2009. July and August are the seasonal low demand period for zinc. As such, zinc prices should fall. Some traders bought spot goods previously with low discounts, and released the goods into the market as zinc prices rebounded, weighing on spot prices. As such, SHFE three-month zinc contract prices should move between RMB 14,300-14,600/mt, with discounts between RMB 20-60/mt.
The remaining 20% believe zinc prices should continue to rebound. They base their opinion on expectations that more stimulus plans will be released in July. The EU summit resulted in positive measures to bailout eurozone economy. Especially since Spanish and Italian government bond yields continue to rise, more stimulus policies are expected to be released. On the other hand, canceled warrants of LME zinc inventories began to surge last week, so LME zinc prices will likely rise to USD 1,880-1,900/mt. The market is expecting China will release stimulus policies. SHFE three-month zinc contract prices should move between RMB 14,900-15,100/mt. As smelters will widely conduct maintenance, goods supply will decrease. As such spot discounts will be RMB 80-100/mt.