SHANGHAI, Jan. 29 (SMM) - SHFE 1304 zinc contract prices opened at RMB 15,570/mt, and soared to an intraday high of RMB 15,640/mt as long momentum mounted. But in response to falling LME zinc prices, SHFE 1304 zinc contract prices inched down to RMB 15,550/mt, fluctuating between RMB 15,580-15,600/mt, and finally closed at RMB 15,570/mt, down RMB 10/mt, or 0.06%. Trading volumes of SHFE 1304 zinc contract decreased by 18,378 lots, to 43,316 lots, and total position decreased by 12,352 lots to 77,752 lots.
SHFE three-month zinc contract prices fell after rising initially today. Discounts of #0 zinc against SHFE three-month zinc contract prices remained around RMB 300/mt, with traded prices between RMB 15,280-15,300/mt. #1 zinc prices were RMB 15,240-15,250/mt. Traders left the market as the Chinese New Year holiday neared, while downstream buyers only purchased on an as-needed basis, keeping transactions muted.
In response to positive macroeconomic news, LME zinc prices edged up last week, breaking through all moving averages.
63% market players believe LME zinc prices should continue to test USD 2,100/mt, and SHFE three-month zinc contract prices will move between RMB 15,500-15,700/mt, with spot discounts between RMB 290-330/mt. The US debt ceiling issue will remain the focus of markets in the coming week. Near-term market concerns over US default will ease if the US Senate passes the debt ceiling bill next week. The US will also announce 4Q GDP results, January interest rates by the US Federal Reserve and January non-farm data. Given sluggish US manufacturing in 4Q, GDP will not rise sharply. But US January non-farm data is expected to boost the market. In general, macroeconomic news is expected to be upbeat. But given the 1.2 million mt of LME zinc inventories, LME zinc prices should meet resistance at USD 2,100/mt.
Investors left the market as the Chinese New Year holiday neared, keeping transactions extremely quiet. The Shanghai Composite fell last week after rising initially. But after the NBS announced gains of enterprises in 4Q offset negative 3Q earnings, the Shanghai Composite rallied to 2,300. The index is expected to maintain upward track, so SHFE three-month zinc contract prices should move between RMB 15,500-15,700/mt this week.
20% market players are pessimistic, believing LME zinc prices should fall to USD 2,020/mt. US January CCI was 71.3, lower than forecast and 72.9 in December 2012. Besides, US existing home sales and manufacturing index from Richmond Federal Reserve in January fell short of expectations and previous data. Investors are thus cautious.
Due to shrinking demand and high domestic zinc inventories, SHFE three-month zinc contract prices should fall to RMB 15,350-15,500/mt, with spot discounts between RMB 250-280/mt. Transaction will be quieter.
The remaining 17% are optimistic. January ZEW economic sentiment index for Germany and euro zone topped forecasts. China’s January PMI was also better than forecasts and the previous data. As global economy is improving, and combined with positive fiscal earnings reports of major US enterprises, LME zinc prices are expected to break through USD 2,100/mt. coupled with loosening cash flows and strengthening Shanghai Composite, SHFE three-month zinc contract prices will hover around RMB 15,700/mt, and spot discounts will expand to RMB 300-350/mt.