SMM Zinc Market Daily Review (2013-1-7)

SHANGHAI, Jan. 8 (SMM) - Today SHFE 1304 zinc contract became the most actively traded one, with prices opening lower at RMB 15,540/mt, and generally fluctuating around RMB 15,570/mt, and touching RMB 15,615/mt. But with resistance at the 5-day moving average, and since the Shanghai Composite fell along with LME zinc prices, SHFE three-month zinc contract prices reversed their increases. As long momentum mounted in the afternoon, SHFE three-month zinc contract prices fell again after briefly moving around RMB 15,530/mt, and finally closed at RMB 15,470/mt, down RMB 170/mt. Total position increased by 9,794 lots to 89,150 lots.

SHFE three-month zinc contract prices fluctuated at low levels. Discounts of #0 zinc against SHFE three-month zinc contract prices narrowed to RMB 260-280/mt, with traded prices between RMB 15,200-15,210/mt. #1 zinc prices were RMB 15,160-15,170/mt. Smelters still lacked interest to move goods, and supply tightness did not ease. Traders were pessimistic and purchaseeed modestly, and downstream buying interest was low, keeping overall transactions muted.

US fiscal cliff problems resulted in an agreement last week. LME zinc prices were boosted and touched a near-half-year high of USD 2,185/mt, but then rolled back previous gains in the following two days.

With regard to zinc price trends this week, 80% market players believe LME zinc prices should stop falling and fluctuate. Interest rates in England and euro zone for January will be decided this week. As European debt crisis eased, the market anticipates eurozone will maintain interest rates unchanged, so zinc prices will lack guidance. Besides, the number of US first-time and continued jobless claims for last week will be released, which will remain within investors expectations. US dollar index rallied to 80, but has little room to rise further. As such, LME zinc prices should move between the 20-day and 30-day moving averages, fluctuating between USD 2,040-2,080/mt.

In China, as upward momentum of the Shanghai Composite waned, and since LME zinc prices fluctuated, SHFE 1304 zinc contract prices should vacillate between RMB 14,450-15,650/mt. In domestic spot markets, the willingness of smelters to move goods did not improve, and arbitrage traders also barely released goods, with spot supply tightness and firm prices. Spot discounts against SHFE 1304 zinc contract prices should remain between RMB 350-400/mt.

20% market players believe LME zinc prices should extend declines, falling between 30-day and 60-day moving average, below USD 2,000/mt. On the news side, concerns that the US Federal Reserve will quit easing policies continued to depress the market, causing the US dollar index continued to rebound. Besides, eurozone November unemployment rate and December CCI will be announced this week. Investors are pessimistic towards November unemployment data since it reached 11.7% the previous month, weighing down market confidence. As such, both gold and crude oil prices fell, dragging down zinc prices. In this context, LME zinc prices should fall below the 30-day moving average to USD 2,000/mt.

In China, many downstream processors will suspend production leading up to the Chinese New Year holiday, with consumption weakening. But domestic smelters will generally maintain normal production during the holiday. As a result, severe supply and demand imbalance will remain in the foreseeable future, and will pull zinc prices on the downside. SHFE three-month zinc contract prices should drop to RMB 15,350-15,450/mt, with spot discounts between RMB 300-350/mt.