SMM Zinc Market Daily Review (2013-3-4)

SHANGHAI, Mar. 5 (SMM) – SHFE 1305 zinc contract price gapped lower at RMB 15,350/mt on Monday, and moved between RMB 15,360-15,380/mt. Prices fell to RMB 15,300/mt at midday due to the declines in domestic stocks and finally closed RMB 15,295/mt, down RMB 185/mt or 1.2%. Trading volumes increased 370 lots to 45,812 lots, while positions were down 6,966 lots to 97,248 lots.

Discounts of #0 zinc against SHFE 1305 zinc contract prices narrowed to RMB 240-250/mt, with traded prices between RMB 15,120-15,140/mt. #1 zinc prices were RMB 15,080-15,100/mt. Smelters continued to hold onto their goods due to falling zinc prices, but arbitrage traders released goods as spot discounts narrowed. Downstream buyers took a wait-and-see attitude, keeping transactions muted.

Last week, US Fed Chairman Bernanke’s statement and Italy’s general election dominated markets. Zinc prices surged initially and then fell, rolling back weekly gains.

According to a recent SMM survey, 60% market players believe LME zinc prices will find support at USD 2,150/mt, with prices moving between USD 2,015-2,060/mt. SHFE 1305 zinc contract prices will test RMB 15,260/mt, moving between RMB 15,250-15,600/mt, with spot discounts between RMB 220-250/mt. The Reserve Bank of Australia, Bank of Canada, Bank of Japan, Bank of UK and European central bank will decide March interest rates this week. The market is strongly expecting interest rates decreases since the Reserve Bank of Australia even emphasized it will took additional measures when necessary, but not at this meeting. Bank of Canada, Bank of Japan and European central bank will unlikely take any measures.

The first session of the 12th National People's Congress will be held this Tuesday, and the market is expecting additional positive news from the meeting.

The other 40% market players think zinc prices should continue to fall, but declines will narrow. LME zinc prices should test USD 2,000/mt. SHFE zinc prices should challenge the RMB 15,100/mt mark, with spot discounts expected to narrow to RMB 200-220/mt. UK’s February PMI was 47.9, and the index shrank for the first time since November 2012, and will likely drag down 1Q economic growth of UK. The market is expecting Bank of UK will resume government debt purchasing plan at the interest rates meeting. If the bank resumes the debt purchasing plan, the pound will be weighed down, while the US dollar index should move higher, while zinc prices will continue falling. US non-farm employment and unemployment rate for February will be released this Friday. If the number of newly increased non-farm employment rose from January, expectations that the US Federal Reserve will cut easing scale in advance will strengthen, and zinc prices will thus pull down. LME zinc inventories had grown by 1.5% last Wednesday, and further stood at 1.2 million mt last Friday.

The State Council released additional regulation measures to the real estate sector, saying the cities in which house prices rise too rapidly can further raise the down payment of a second house and loan interest rates. As a result, most real estate stocks dropped by daily limits on Monday. The sluggish real estate sector will further weigh down zinc prices. Demand for zinc will not improve noticeably, and spot discounts against SHFE three-month zinc contract prices will narrow to RMB 200-220/mt.