SMM Zinc Market Daily Review (2013-4-15)

SHANGHAI, Apr. 16 (SMM) - LME zinc prices plunged last Friday as US major economic data fell short of expectations. SHFE 1307 zinc contracts prices opened low at RMB 14,570/mt, and then moved around RMB 14,600/mt. China's GDP growth and March industry value added were both lower than forecasts. Disappointing data from China and US triggered concerns that global economic growth will slow, and caused commodity and global stocks markets to plummet. In this context, LME zinc prices plunged and dipped to a record low last seen in July 2012, and closing at RMB 14,455/mt, down RMB 350/mt or 2.36%. Trading volumes increased by 68,790 lots, to 114,576 lots, and total positions increased by 10,792 lots to 153,590 lots.

SHFE 1307 zinc contract prices opened low and moved lower, hitting a record low last seen in July 2012, down RMB 320/mt by the end of the morning trading, or a drop of 2.16%. Discounts of #0 zinc against SHFE 1306 zinc contract prices were initially RMB 40/mt, and then narrowed to RMB 0/mt as SHFE zinc prices fell, with traded prices between RMB 14,440-14,510/mt. #1 zinc prices were between RMB 14,420-14,480/mt. Smelter unwillingness to sell goods enhanced, while traders took a wait-and-see attitude. Arbitrage traders released goods moderately due to narrowing spot discounts, and downstream buyers purchased modestly at lower prices, with overall transactions muted.

SHFE zinc prices continued to fall in the afternoon, with spot discounts of #0 zinc against SHFE 1306 zinc contract prices around RMB 10/mt, and with mainstream traded prices between RMB 14,380-14,400/mt.
   
Zinc prices surged initially last week but then fell, and were dragged down by poor major economic data from China and US on Monday. Will zinc prices stop falling this week?
   
According to a recent SMM survey, 57% of market players believe zinc prices will fall further. LME zinc prices will fall to test USD 1,812.5/mt, moving between USD 1,800-1,850/mt. SHFE zinc prices will find support at RMB 14,140/mt, with spot discounts against SHFE 1307 zinc contract prices narrowing to RMB 10-50/mt. US economic data released last Friday fell short of forecasts, while China's GDP growth in Q1 was 7.7%, also below the previous month and expectations, and scale-efficiency industry value added in March was lower than the previous month and forecast. This increased concerns that global economic growth will slow. In this context, commodities and global stocks markets plunged, dragging down zinc prices. The sluggish market sentiment will not fade this week, which will weigh down zinc prices. The US Federal Reserve officials will state this week since they have not reached an agreement on precise timing to end easing policies, which will affect the market. The market will focus its attention on Obama's budget bill for 2014, with the G20 finance minister meeting and central bank presidents meeting held during this Thursday and Friday focuses of markets, with the topic that what actions other countries will take after Japan release radical easing policies. Cyprus crisis is now growing, as it will need EUR 6 billion more than expected, with risk aversion increasing, which will continue to weigh down zinc prices.
   
In China, power consumption in March was 424.1 billion KWH, up 2% YoY, but down sharply from a 5.5% growth during January-February, showing China's economic is modestly improving. Besides, the H7N9 avian influenza spread, and will affect investor sentiment and weigh down domestic stocks markets, which will drag down commodity markets.
   
43% believe zinc prices should fluctuate weakly. LME zinc prices should fluctuate around USD 1,850/mt, and SHFE 1307 zinc contract prices will find support at RMB 14,400/mt, with spot discounts of RMB 50-70/mt. Earnings of Alcoa grew by 10% YoY in Q1, so the market is expecting fiscal earning reports from US. Besides, LME zinc inventories continued to fall, to 1,136,050 mt by last Friday, down in excess of 70,000 mt MoM, which will give support to zinc prices.
   
According to SMM statistic, due to the release of downstream demand and smelters slowing operations and holding back goods, zinc inventories in Shanghai, Tianjin and Guangdong have been falling since mid March. Smelters were more unwilling to sell goods due to high costs, causing tightness of some brands. As spot supplies continue to decrease, zinc prices will gain support.