SMM Zinc Market Daily Review (2013-1-14)

SHANGHAI, Jan. 15 (SMM) - LME zinc prices last Friday plunged. SHFE 1304 zinc contract prices opened lower at RMB 15,410/mt on Monday, and plummeted to an intraday low of RMB 15,330/mt due to increasing selloffs in the morning trading. But as the Shanghai Composite soared to 2,300, SHFE 1304 zinc contract prices climbed to RMB 15,495/mt. The Shanghai Composite continued to rise later in the day, with increases exceeding 3%. But SHFE 1304 zinc contract prices lacked upward momentum and fluctuated narrowly between RMB 15,430-15,450/mt, and finally closed at RMB 15,455/mt, down RMB 75/mt. Total position increased by 3,352 lots to 95,472 lots.

SHFE three-month zinc contract prices inched up slowly after plunging today. Discounts of #0 zinc against SHFE three-month zinc contract prices narrowed to RMB 280-300/mt, with traded prices between RMB 15,090-15,110/mt. #1 zinc prices were RMB 15,070-15,080/mt. Smelters were more willing to move goods, but traders lacked buying interest due to high quotes, and they bought from other traders at lower prices. Due to narrowing discounts, arbitrage traders were more willing to sell goods, and downstream buyers purchased at lower prices, causing overall transactions to improve.

LME zinc prices advanced due to improving China trading data last week, but plummeted after pointing towards the 30-day moving average.

With regard to zinc price trends this week, about 73% market players believe zinc prices will stop falling but lack upward momentum, remaining fluctuating during the week. The market is optimistic towards US January manufacturing index at local Federal Reserves and December housing starts, and this will back zinc prices to stabilize. Besides, the US dollar index has fallen below 80, and lacks momentum to rebound soon. But given LME zinc inventories maintaining above 1.21 million mt and sluggish consumption, LME zinc prices should vacillate between USD 2,000-2,050/mt.

China's December CPI and PPI released last Friday were both worse than expected, depressing investors' optimism, and causing the Shanghai Composite limited increases. Besides, the market is pessimistic towards China's 4Q GDP which will be released this week, so the Shanghai Composite will remain fluctuating. In this context, SHFE three-month zinc contract prices should move between RMB 15,350-15,500/mt, with spot discounts between RMB 300-350/mt.

The remaining 27% believe LME zinc prices will continue to fall, losing the 5-day moving average. December CPI and PPI in major eurozone countries due this week are pessimistic. Besides, Dow Jones-UBS index lowered base metal proportion, with the proportion of zinc down from 3.4%, to 2.5%. That reflects the well-known institution is pessimistic towards zinc prices in 2013. As a result, LME zinc prices are expected to fall below USD 2,000/mt.

In China, investors lacked enthusiasm to enter the market leading up the Chinese New Year holiday. Besides, downstream processors mostly plan to suspend production by the end of January due to a lack of orders, which will weigh down zinc prices in the foreseeable future. SHFE 1304 zinc contract prices should lost the 5-day moving average and inch down to the 60-day moving average, moving between RMB 15,200-15,350/mt, with spot discounts RMB 250-300/mt.