Shanghai, Jul. 17 (SMM) – SHFE 1210 zinc prices, the most actively traded contract, opened slightly higher on Monday, and then hovered at highs after reaching a recent high of RMB 14,860/mt. Later, SHFE three-month zinc prices dropped along with falling LME zinc prices, and slid below the daily moving averages, with prices between RMB 14,750-14,800/mt. In the afternoon session, falling stocks prices deprived of any rising momentum in the SHFE zinc market, leaving prices between RMB 14,800-14,820/mt. Finally, SHFE three-month zinc prices closed at RMB 14,800/mt, up RMB 80/mt or a gain of 0.54%. Trading volumes were down 21,628 lots to 69,238 lots, and positions were down 4,994 lots to 160,588 lots. Positions for SHFE 1211 zinc contract were up 11,922 lots, a sign of the shift of the most actively traded contract.
In the spot market, discounts of #0 zinc over SHFE three-month zinc prices were between RMB 110-130/mt, with deals between RMB 14,700-14,730/mt. As SHFE zinc prices drifted lower, spot discounts expanded to RMB 100/mt, and transactions were made in the RMB 14,680-14,690/mt range. Deals for #1 were concluded at RMB 14,640-14,680/mt. As discounts expanded in the morning business, some traders went arbitrage trading, and turned active in sales as spot discounts narrowed after SHFE zinc prices dropped. Downstream producers, however, took a strong wait-and-see posture in response to price rallies in early week, resulting in quiet trading.
China’s GDP during 2Q was up 7.6% according to the data released last Friday, the lowest in three years, but still in line with expectations. With speculations that China will take additional stimulus policies, LME zinc prices continued to rise.
With regard to zinc price trends this week, 66% market players believe zinc prices will lack momentum to rise but will find strong support. Concerns remain despite easing euro zone problems. According to the minute announced by the US Federal Reserve for June, most officials believe to prolong twist operation is favorable, and the likelihood of QE3 implementation is low unless economic downturn risk improves and inflation continues to drop sharply, curbing risk appetite of investors. As a result, LME zinc prices should rolled back gains and fluctuate between USD 1,840-1,880/mt. Premier Wen Jiabao pointed out recently domestic economy should weather difficulties in the near term. Besides, domestic economy is facing downturn pressure, with the lack of market confidence. As such, SHFE three-month zinc contract prices should move between RMB 14,600-14,800/mt. In domestic spot markets, downstream industries are in the seasonal low demand period, while many smelters cut output recently, keeping transactions muted. Traders also trade modestly due to the lack of arbitrage opportunity. Spot discounts should remain between RMB 80-100/mt.
17% see zinc prices falling. Affected by Spain and Greece trapped in difficulties, Moody’s downgraded Italy’s rating from A3, to Baa2. With the cut of credit ratings of euro zone countries and sluggish economic data, the market lacks confidence towards euro zone, and shorts will sell off goods once negative news is reported. As such, LME zinc prices should fall to test USD 1,850/mt. Both China’s PPI for June and GDP for 2Q slid, signaling domestic economy is in the face of downturn risk. The sluggish economy will not turn around in the short term, keeping domestic downstream consumption weak. As such, SHFE three-month zinc contract prices should test RMB 14,600/mt, with spot discounts narrowing to RMB 60-90/mt.
17% believe SHFE three-month zinc contract prices should break through RMB 14,900/mt. Spain released tightening policies recently, and will receive EUR 30 billion of bailout funds by the end of the month, helping ease problems at its banking sector. Besides, JP Morgan’s financial report showed profit margins of USD 5 billion in the quarter, indicating better-than-expected situation in the financial sector. Investors were encouraged. As such, LME zinc prices should surge and move between USD 1,860-1,900/mt. Falling economic growth and inflation index open a window for additional stimulus policies. With expectations of new policies, SHFE three-month zinc contract prices should break through RMB 14,900/mt level. Spot goods will rise limitedly, and spot discounts should expand to RMB 100-120/mt.