SHANGHAI, Mar. 19 (SMM) – The renewed European debt issues triggered market panic, and SHFE 1306 zinc prices, the most actively traded one, opened down by RMB 160/mt at RMB 15,150/mt. Huge shorts pressures weighed down the price, down to RMB 14,520/mt, the lowest since last July. With bargain hunting, the contract briefly rebounded to RMB 14,910/mt, and finally closed at RMB 14,870/mt, down RMB 440/mt or 2.87%. Transactions were up 75,890 lots to 149,362 lots, while positions were up 12,330 lots to 141,618 lots.
In the spot market, discounts of #0 over SHFE 1306 zinc prices were between RMB 160-180/mt, with traded prices at RMB 14,720-14,750/mt. In the afternoon business, spot discounts were between RMB 180-190/mt as SHFE zinc market was gradually stabilizing, with traded prices around RMB 14,720/mt. #1 zinc traded at around RMB 14,720/mt. The tumbling zinc prices dampened smelters’ interest in sales, and spot discounts narrowed significantly, causing arbitrage goods to be locked out of the market. Downstream buying interest improved at lows, helping improve overall trading.
Last week, the positive US economic data allowed LME zinc prices to stop falling. Zinc prices plunged on Monday, affected by improving European debt crisis. Will zinc prices stop falling this week?
According to a recent SMM survey, 53% of market players surveyed believe LME zinc prices should test USD 1,900/mt level, and SHFE 1306 zinc contract prices will consolidate RMB 14,570/mt, with spot discounts between RMB 150-180/mt. At last week’s end the euro zone reached an agreement that Cyprus will receive bailout funds of EUR 17 billion. EUR 10 billion will be supplied by the US Federal Reserve, EU and European central bank, and the remainder will be collected from tax payment. This triggered investor concerns. That is favorable for the resolving of Cyprus’ debt problem, but Cyprus will vote for the decision on Tuesday. If the plan fails to pass the vote, massive deposits will flow out of Cyprus, and will harm its economy. Italian Parliament held the first meeting after the election last Friday to elect presidents of senate and House of Representatives. But the first round of vote failed, and the market anticipates the second round of vote will not reach any result, which will force them to vote for a third round. Besides, US will hold a meeting to decide March interest rates this Wednesday. US economy is now improving, and any signs that quantitative easing policies will be quitted from the meeting will affect the market significantly. Besides, the high LME inventories reaching 1.2 million mt will also weigh on zinc prices.
Expectations that downstream buyers will replenish stocks after the Chinese New YEAR Holiday and improving downstream market will boost zinc demand drove pre-holiday zinc prices. But downstream market has yet to improve, and will continue to pull down zinc prices. Smelters have been holding goods after the holiday due to continuously falling zinc prices. But by last Friday, zinc inventories in Shanghai, Guangdong and Tianjin only fell by 4,000 mt since the holiday. Both sluggish demand and high inventories will weigh down zinc prices.
The other 47% think LME zinc prices will move between USD 1,920-1,960/mt, and SHFE three-month zinc contract prices will fluctuate between RMB 14,850-15,150/mt, with spot discounts between RMB 180-190/mt. US will release February finished home sales and new home sales data this week, which is optimistic. The improving US property market will boost market confidence and help zinc prices stop falling.
In China, the tightening regulations to the property market have been absorbed. The NPC and CPPCC closed last week’s end, and statements by new government leaders are expected to positively affect the market. The plunging zinc prices today helped increase downstream buying interest, but depressed smelters. Smelters will reduced goods supply this week, and shrinking spot supply and growing demand will allow zinc prices to stop falling.