SMM Zinc Market Daily Review (2013-2-4)

SHANGHAI, Feb. 5 (SMM) - SHFE 1305 zinc contract prices opened higher at RMB 16,160/mt. Both LME zinc prices and the Shanghai Composite fluctuated narrowly due to a lack of positive news, so SHFE  1305 zinc contract prices fluctuated between RMB 16,180-16,235/mt, and closed at RMB16,170/mt, up RMB 135/mt, or 0.84%. Trading volumes of SHFE 1305 zinc contract decreased by 16,330 lots, to 137,510 lots, and total position increased by 4,852 lots to 182,456 lots.

SHFE three-month zinc contract prices opened higher today. Discounts of #0 zinc against SHFE 1305 zinc contract prices were between RMB 400-430/mt, with traded prices between RMB 15,750-15,780/mt. #1 zinc prices were RMB 15,700/mt. Market players began to leave the market in the last trading week before the Chinese New Year holiday, while downstream buying interest was low due to rising zinc prices, keeping transactions muted.

Last week, LME zinc prices broke through USD 2,100/mt as the US dollar index weakened, fluctuating above all moving averages during the week. According to a recent SMM survey of 30 domestic market players, most of them are optimistic towards zinc price trends this week.

60% market players surveyed believe LME zinc prices will challenge USD 2,200/mt, and SHFE 1305 zinc contract prices will move between RMB 16,200-16,500/mt. Spot goods availability will be low, with spot discounts against SHFE 1305 zinc contract prices expected between RMB 400-430/mt. The US Federal Reserve decided to maintain interest rates unchanged and easing monetary policies in order to push economic growth, which will positively affected LME zinc prices this week. Besides, both European central bank and Bank of UK will announce interest rates this week, and the market expects European central bank will maintain current interest rates due to positive economic data in euro zone. New PMI and trade data in Europe and US which is to be released this week is also positive. 

In China, official PMI released last Friday was lower than expectations, but has remained above 50% for four consecutive months. Besides, the improving PMI from HSBC shows China's economy moved steadily. Increasing profits at scale-efficiency industrial enterprises in December also indicate China's economy improved. The Shanghai Composite broke through 2,400 last week, and is expected to extend increases this week, which will also support SHFE zinc prices. If China's January PPI and CPI which is due this Friday turns out to be positive, zinc prices should gain support to rise further. Transactions will mute due to the upcoming Chinese New Year holiday, while smelters are still unwilling to sell goods due to optimism, which will lead to resource shortfalls in the market. As such, spot discounts against SHFE three-month zinc contract prices should remain between RMB 400-430/mt.

The remaining 40% believe zinc prices should limit increases. Despite the fact major economic data indicates economies in Europe and US are improving, the disappointing US employment data released last Friday triggered investor concerns. Besides, LME zinc inventories stood at a high 1.21 million mt, which will also weigh down LME zinc prices. LME zinc prices are expected to fluctuate between USD 2,140-2,200/mt. as investors began to leave the market ahead of holiday, transactions muted. SHFE 1305 zinc contract prices are expected to move between RMB 16,000-16,300/mt. As spot zinc prices rose to a high since April 2012, downstream did not plan to build stocks ahead of the holiday. Meanwhile, some cargo holders are moving goods to generate cash. In this context, spot discounts are expected to expand to RMB 450/mt, and transactions will mute as investors exit the market.