SMM Zinc Market Daily Review (2012-10-29)

SHANGHAI, Oct. 30 (SMM) -- On Monday, SHFE 1301 zinc contract prices opened at RMB 14,690/mt, and touched RMB 14,735/mt in the morning trading, and then dipped to RMB 14,650/mt, dragged down by the Shanghai Composite Index. Although the Shanghai Composite Index continued to drop at noon, LME zinc prices moved steadily. In this context, SHFE 1301 zinc contract prices remained steady, and generally fluctuated narrowly around RMB 14,680/mt in the afternoon, and finally closed at RMB 14,685/mt, down RMB 40/mt compared to the previous trading day.

In domestic spot markets, discounts of #0 zinc against SHFE three-month zinc contract prices were between RMB 100-110/mt, with traded prices between RMB 14,560-14,580/mt. #1 zinc prices were around RMB 14,530-14,550/mt, with supply increasing. Smelters continued to hold goods, while arbitragers were actively selling goods to generate cash, so spot discounts did not change significantly despite plunging SHFE zinc prices. Downstream inquiries increased, but a wait-and-see sentiment continued, with overall transactions muted.

Zinc prices continued to drop last week, while the US dollar index stood at 80 again, pushing down LME zinc prices.

With regard to zinc price trend this week, 70% of market players believe SHFE three-month zinc contract prices should test RMB 14,500/mt. The US dollar index found support at 80, and should fluctuate at high levels this week. Besides, European debt problems continued to plague the market, so the euro is pessimistic. In addition, LME zinc inventories surged again, to 1.14 million mt, pushing down LME zinc prices. LME zinc prices are expected to test USD 1.800/mt.

The Shanghai Composite Index inched down as of last week, losing the 2,100 level. In this context, SHFE three-month zinc contract prices will fall further to RMB 14,500/mt. In domestic spot markets, smelters were holding onto their goods at lower prices, but as arbitragers moved goods actively due to narrowing discounts, goods supply was not tight. Besides, the SHFE/LME zinc price ratio rose as of mid-October, and caused import profits. Once imported zinc flows to China, domestic spot markets will be impacted. Spot discounts against SHFE three-month zinc contract prices should be between RMB 80-110/mt this week.

The remaining 30% believe zinc prices should stop falling and stabilize this week. SHFE three-month zinc contract prices should stop falling at RMB 14,600-14,700/mt. China’s official PMI and US private and non-farm employment data will be released this week, which are pessimistic. Besides, LME zinc prices have been fluctuating low for some time, and will not drop further. LME zinc prices are expected to fluctuate between USD 1,820-1,840/mt.

This week is the last week of the month, and after cash flow problems and financial factors are resolved, low zinc prices will allow downstream buyers to purchase. Besides, current prices were still below smelting costs, and zinc prices will be supported by costs. SHFE three-month zinc contract prices should hover between RMB 14,600-14,700/mt this week, with spot discounts between RMB 110-130/mt.