SHANGHAI, Apr. 23 (SMM) - SHFE 1307 zinc contracts prices opened at RMB 14,575/mt on Monday, meeting resistance at the 10-day moving average after touching RMB 14,620/mt, and then falling to RMB 14,570/mt, pushed down by shorts. As LME zinc prices dropped steeply in the afternoon, SHFE zinc prices were pushed up, dipping to a daily low of RMB 14,460/mt, and finally closing at RMB 14,480/mt, up RMB 5/mt. Total positions decreased by 3,792 lots to 127,974 lots.
SHFE 1307 zinc contract prices fluctuated high. Spot discounts of #0 zinc against SHFE 1307 zinc contract prices were between RMB 60-70/mt, with traded prices between RMB 14,490-14,510/mt. #1 zinc prices were between RMB 14,460-14,470/mt. Smelters were still holding back goods, while traders barely had arbitrage opportunity due to firm spot prices and steady discounts, and downstream buying interest was still low, keeping overall transactions muted. As SHFE zinc fell in the afternoon, prices for #0 zinc also inched down to RMB 14,450-14,470/mt.
Copper prices had been falling due to negative news, while zinc prices were more resistant to declines. Will zinc prices stand firm this week?
With regard to zinc price trends, 70% market players surveyed by SMM believe zinc prices will continue to struggle around the 5-day moving average, moving between RMB 1,870-1,900/mt. US March property data and CCI will be released this week. Despite US manufacturing and consumption data has been upbeat since 2H 2012, the negative effects from the automatic spending cuts policy effective in March shook investor confidence toward US economic recovery, so base metals prices will find no direction.
In China, HSBC's April PMI for China coming this week is optimistic. Inventories in the three major domestic regions fell below 500,000 mt, with end-user demand continuing to improve. Meanwhile, arbitrage traders buying zinc while selling copper also lend a support to zinc prices. Nevertheless, the Shanghai Composite Index will not extend increases due to the earthquake in Ya'an. As such, zinc prices' dynamic to rise will not persist beyond the immediate term, with prices expected to move between RMB 14,500-14,700/mt.
In domestic spot markets, most smelters have rare profits or have been suffering from losses as zinc prices have been moving close to the cost line, so were unwilling to sell goods. Spot prices are firm, with spot discounts against SHFE three-month zinc contract prices remaining between RMB 60-90/mt.
The remaining 30% market players are pessimistic toward zinc prices, believing LME zinc prices will sink to RMB 1,850-1,870/mt. Economic data from many euro zone countries will be released this week, with economies in Germany, France and euro zone expected to deteriorate, which will continue to push down zinc prices. Besides, the rising US dollar index will weigh on base metal prices.
Due to lingering downstream pessimism, the need to replenish stocks before the Labor Day holiday is weak, so spot transactions will remain sluggish. SHFE 1307 zinc contract prices will fall below RMB 14,500/mt, with spot discounts narrowing to RMB 60/mt.