SHANGHAI, Jun. 3 (SMM) –
Last week, the LME market was closed on Monday due to a UK bank holiday, but LME zinc prices led increases of all base metals, rising to the 30-day moving average and challenging the 60-day moving average. Bank of Japan officials expressed support for easing policies despite the recent decline in the Nikkei Index. It was reported that Japanese Prime Minister Shinzo Abe may announce additional structural reform plans in early June, so stock price declines did not weigh down base metals. The number of US initial jobless claims last week reached 354,000, with an average increase over the past four weeks of 6,750. US 1Q GDP was revised downward by 0.1% to 2.4%, helping ease concerns that the US Federal Reserve will reduce QE3, but pushed down the US dollar index to the 60-day moving average. In response, LME zinc prices extended gains and broke through the 60-day moving average and the USD 1,900/mt level, briefly hitting USD 1,920.5/mt.
SHFE 1309 zinc contract prices also pointed toward the 60-day moving average. Margins at scale-efficiency industry enterprises rose in April by 9.3% YoY, helping ease disappointment from the decline in HSBC’s May PMI for China. The Shanghai Composite Index soared immediately on opening and SHFE 1309 zinc contract prices broke through the 5-day and 30-day moving averages. Active long positions also pushed prices toward the 60-day moving average, but later met resistance due to the weakening copper prices and falling domestic stock markets.
As an increasing number of smelters suspended production, cargo holders held prices firm later in the week, pushing spot premiums for #0 zinc against SHFE three-month zinc contract prices to between RMB 30-60/mt. However, traders began increasing supply later in the week due to month-end cash flow problems. As SHFE zinc prices strengthened, spot discounts for #0 zinc against SHFE three-month zinc contract prices were down to RMB 0-30/mt, but downstream buying interest was still low, keeping transactions muted. Downstream buyers in Fujian province shifted supply sources to Guangdong province due to a price spread of RMB 100-120/mt between Guangdong and Shanghai, while the price spread between Tianjin and Shanghai also narrowed from RMB 190-200/mt early last week to RMB 60-80/mt. Prices for Tianjin Zijin brand were as much as RMB 90/mt below Shanghai Shuangyan by the week’s end due to increasing supply and soft downstream demand resulting from environmental protection inspections.
Many countries will release May PMI this week, with data from China and Europe expected to be disappointing. US economic data will also trigger market expectations of adjustments by the US Federal Reserve to stimulus policies, which will weigh down base metal markets. Zinc prices, however, are expected to remain strong, but increases will be limited due to poor performances by copper, tin and nickel prices. LME zinc prices should test USD 1,920-1,930/mt, and SHFE 1309 zinc contract prices will move between RMB 14,550-14,900/mt. Downstream buyers will replenish stocks before the Dragon Boat Festival holiday in China, and cash flow problems will mitigate, so when combined with limited trading days before the next delivery date, #0 zinc prices could range from RMB 20/mt below to RMB 40/mt above SHFE three-month zinc contract prices.