SHANGHAI, Mar. 26 (SMM) - SHFE 1306 zinc contract prices opened at RMB 15,055/mt on March 25 due to easing Cyprus debt crisis and since LME zinc prices closed up last Friday. After the opening, the most active SHFE zinc contract hit a high of RMB 15,075/mt, but met strong resistance at the 10-day moving average. SHFE 1306 zinc contract prices generally moved between RMB 15,020-15,050/mt during the day, and finally closed at RMB 15,030/mt, up RMB 85/mt or 0.57%. Trading volumes decreased by 2,990 lots to 43,036 lots, while positions were also down 6,162 lots to 126,230 lots.
Mainstream traded prices for #0 zinc were RMB 14,830-14,840/mt, a discount of RMB 200-210/mt over SHFE 1306 zinc contract prices. #1 zinc was traded between RMB 14,800-14,810/mt. Smelters continued to hold goods, while traders stayed out of the market. Downstream buying interest was still low, keeping overall transactions moderate.
Last week, Cyprus debt crisis deteriorated, weighing down zinc prices. LME zinc prices moved between RMB 1,915-1,945/mt, down USD 50/mt from the previous week. Will zinc prices rebound this week?
With regard to zinc prices, 63% of market players surveyed by SMM believe LME zinc prices should test USD 2,000/mt level, and SHFE 1306 zinc contract prices will test the 20-day moving average, with spot discounts narrowing to RMB 150-180/mt. Cyprus reached an agreement with international creditors on the bailout issue, and the draft was passed at the euro zone finance minister meeting, helping ease market concerns. The Euro against the US dollar thus broke through 1.3, and will help zinc prices to rebound. A number of major economic news from Europe and US will be released this week. The optimistic US employment data and GDP is expected to drive zinc prices. Besides, Sweden-based Boliden zinc smelter plans to suspend production for maintenance in 2Q, whose zinc output was 468,000 mt last year, and this will boost zinc prices in the short term.
In China, total income, taxes and profits of China SOEs during January and February rose YoY, with the growth of profits 9.7% YoY. Profits at scale-efficiency industries from January through February will be released this Thursday, with the growth rate expected to fall. But the growth is expected to expand, and will help increase market confidence.
The remaining 37% believe LME zinc prices should move at low levels between USD 1,940-1,985/mt, and SHFE three-month zinc contract prices should fluctuate between the 5-day and 10-day moving averages, with spot discounts between RMB 190-220/mt. Italian President Giorgio Napolitano said he had asked Bersani to form the country’s government, and it is unsure whether the political deadlock will be broke. Besides, US, UK and Hong Kong markets will be closed this Friday due to the Good Friday, and investor risk aversion sentiment should grow. Besides, LME zinc inventories dropped for a fourth consecutive trading days last Friday, to 1,193,825 mt, down 10,725 mt from the previous week. This will increase market confidence, but given the high inventories, zinc prices will still lack upward momentum.
According to a recent SMM survey, operating rates at major domestic zinc smelters dropped by in excess of 3% in February. Besides, as zinc prices continue to fall, profits at smelters are still low, so operating rates at zinc smelters in March will hardly rise noticeably. Smelter unwillingness to produce and holding goods will help zinc prices to stop falling. But since arbitrage traders released goods and due to low downstream buying interest, spot goods supply is ample. As such, zinc prices will lack momentum to rise and remain fluctuating at low levels.