SHANGHAI, Mar. 12 (SMM) – SHFE 1306 zinc prices, the most actively traded contract, opened down at RMB 15,265/mt on Monday due to weaker LME zinc prices, and then struggled at RMB 15,260/mt. Then, the falling stocks prices added to short pressures, and so the contract hit an interday low of RMB 15,180/mt. As LME zinc pared some losses, SHFE zinc market managed to return RMB 15,260/mt. In the afternoon session, the contract fluctuated at lows, and finally closed at RMB 15,220/mt, down RMB 110/mt or 0.72%. Transactions were up 16,998 lots to 84,466 lots, while positions were up 10,712 lots to 126,892 lots.
In the spot market, discounts of 0# zinc over SHFE 1305 zinc contract narrowed slightly to RMB 180-200/mt, with deals between RMB 14,970-14,980/mt. #1 zinc mainly traded at RMB 14,940-14,960/mt. Smelters held goods back, and spot discounts narrowed as a result, leaving ample supply as arbitraged goods entered the market. Downstream producers, however, showed low buying interest, leaving little improvement in transactions. In the afternoon business, discounts of 0# zinc over SHFE 1305 zinc contract were around RMB 190/mt, and traded prices were down marginally to RMB 14,950-14,960/mt.
As China tightened restrictions to the property market, and since the US dollar index strengthened, zinc prices continued to fall last week.
According to SMM latest survey, 47% of market players surveyed by SMM believe zinc prices should fluctuate between USD 1,970-2,000/mt, and SHFE 1306 zinc contract prices should move between RMB 15,155-15,450/mt, with spot discounts between RMB 270-310/mt. The Reserve Bank of New Zealand is expected to maintain interest rates unchanged, and even if it changes the rates, base metals market will not be affected significantly. Italy’s government formation and US spending cuts will take center stage this week. If Italy fails to form any new government this Friday, the country has to launch another election. Besides, the US Federal Reserve will hold a meeting to decide March interest rates next Tuesday and Wednesday. Bernanke and Yellen both supported easing policies, and the US non-farm data is insufficient to change Monetary Policy Committee’s mind. The FOMC will not change its asset purchase plan at the meeting. But investors will remain cautious before the release of the interest rates result, so base metals prices will not fluctuate significantly.
Domestic smelters were holding goods as zinc prices continued to fall, and most goods supply is from arbitrage traders. As downstream market improves, downstream buying interest will increase and allow zinc prices to stop falling this week.
30% of market players believe zinc prices should continue to drop, but declines will narrow. LME zinc prices will dip to USD 1,966.5/mt, and SHFE three-month zinc contract prices will challenge RMB 15,000/mt, with spot discounts narrowing to RMB 250-280/mt. The strengthening US dollar index and weakening euro are major force that hit zinc prices. The US dollar index has been pushed up by US improving economic data and expectations that the US central bank will quit QE. Recent news shows US economy will likely expand more rapidly, and will be attractive for more investors to buy US dollars, which will drive the US dollar index and weigh down zinc prices. Besides, LME zinc inventories were a high 1.19 million mt, which also pulled down zinc prices. As environmental protection inspections were implemented in north China, operations at some enterprises were restricted due to irregular environmental protection measures, and this also restrained demand for zinc.
The remaining 23% believe zinc prices should rebound slightly. Improving downstream demand will drive zinc prices to rebound but increases will be modest. LME zinc prices will challenge USD 2,020/mt, and SHFE 1306 zinc contract prices will test RMB 15,500/mt, with spot discounts expanding to RMB 300-340/mt. US will release the number of first-time jobless claims for the week ending March 9th and the preliminary March CCI from University of Michigan. Major US economic data is optimistic. Citizens from Hong Kong, Macao and Taiwan will be allowed to open an A share account starting April 1st. That will positively affect the Shanghai Composite and boost market confidence, and will pull zinc prices to rebound.