SMM Zinc Market Daily Review (2013-4-8)

SHANGHAI, Apr. 9 (SMM) - SHFE 1307 zinc contracts prices opened at RMB 14,650/mt today since LME zinc prices gained back some losses during the Qingming holiday in China. But LME zinc prices overnight plunged after opening, and investors were concerned the avian influenza will trigger market fears, dragging down commodity prices. As a result, large numbers of shorts rushed to the market, and SHFE zinc prices dipped to RMB 14,575/mt. But as the Shanghai Composite Index pulled up, and since LME zinc prices inched up to USD 1,900/mt, SHFE zinc prices broke through the 5-day moving average, and finally closed at RMB 14,735/mt, up RMB 125/mt or 0.86%. Trading volumes decreased by 25,030 lots, to 64,458 lots, and total positions decreased by 2,894 lots to 130,496 lots.

SHFE 1307 zinc contract prices opened high, but dipped, and then rallied. Discounts of #0 zinc against SHFE 1306 zinc contract prices were RMB 50-70/mt, with traded prices between RMB 14,490-14,530/mt. #1 zinc prices were between RMB 14,460-14,480/mt, with tight supply. Smelters continued to hold back goods, and traders stood on the sidelines after the holiday. Downstream buyers purchased to replenish stocks, so overall transactions improved.

Major economic data from Europe and US last week was generally disappointing, weighing down zinc prices. Will zinc prices stop falling this week?

According to a recent SMM survey, 40% of market players surveyed believe LME zinc prices should lose USD 1,850/mt, testing USD 1,812.5/mt. SHFE 1307 zinc contract prices should fall to test RMB 14,300/mt, with spot discounts narrowing to RMB 30-60/mt. Market attention will be focused on US. US non-farm employment data released last Friday fell far short of expectations, causing market concerns towards US economic recovery, and will continue to plague commodity market this week. The automatic spending cuts under the sequester have exerted a considerably negative influence on the market, one that looks set to grow until budget negotiations resume. Earning reports in the US will also be released, which is pessimistic, and expected to weigh down zinc prices.

 China's March CPI and PPI will be released this Tuesday. As food supply increased after the Chinese New Year holiday, the CPI growth is expected to fall. China was recently attacked by the bird flu, causing market fears. With negative news in domestic stocks markets, zinc prices are pessimistic.

 27% market players believe zinc prices will rally. LME zinc prices are expected to rise to USD 1,900/mt, and SHFE 1307 zinc contract prices should gained back losses in the previous week, moving between RMB 14,700-14,800/mt, with spot discounts around RMB 100/mt. US non-farm employment data released last Friday was poor, helping ease concerns that US will quit quantitatively easing polices in advance. Japan began to implement QE without announcing a deadline, while European central bank President Draghi expressed his pessimism towards economic outlook, and stated the bank will maintain easing policies in a long term. Increasing currency supply will push up zinc prices, and investor appetite for risk grew, driving up the euro against the US dollar to the 20-day moving average. This will boost investor confidence in the euro zone, and boost zinc prices. LME zinc inventories had fallen for 12 consecutive days by last Friday, down in excess of 50,000 mt, to 1.15 million mt.

Smelters continued to hold back goods after the Chinese New Year holiday, while spot supply was mainly available from arbitrage traders. But since they reduced supply, some brands fell short. Demand for zinc is expected to improve in April, and will support zinc prices to rise.
 
33% believe zinc price decreases will slow. LME zinc prices will continue to test USD 1,850/mt, moving between USD 1,840-1,900/mt, and SHFE 1307 zinc contract prices will move between RMB 14,550-14,700/mt, with spot discounts between RMB 60-90/mt.
 
SHFE zinc prices have fallen to a near-two-year low, while LME zinc prices are only USD 50/mt higher than a two-year low. Some smelters have cut output due to losses since domestic spot prices were close to the lowest last year. Zinc prices should fluctuate this week due to support from costs.