SHANGHAI, Jun. 4 (SMM) - SHFE 1309 zinc contract prices opened RMB 115/mt, higher at RMB 14,890/mt. China's official PMI in May fell short of expectations with 54.3, and HSBC announced China's May PMI was revised downward from 49.6, to 49.2. SHFE zinc prices touched an intraday high of RMB 14,915/mt immediately following opening, but fell back to RMB 14,830-14,850/mt as longs left the market with profit-taking. But since shorts exited the market at the end of trading, SHFE zinc prices closed at RMB 14,880/mt, up RMB 105/mt or 0.71%. Trading volumes decreased by 13,144 lots, to 75,282 lots, and total positions decreased by 2,126 lots to 168,202 lots.
SHFE zinc prices opened higher but later fell back below the 60-day moving average. #0 zinc prices ranged from RMB 30/mt below to RMB 10/mt above SHFE 1309 zinc contract prices, with traded prices between RMB 14,810-14,850/mt. #1 zinc prices were between RMB 14,800-14,810/mt. Prices of the Shuangyan brand were between RMB 14,830-14,850/mt, with price of Yuguang around RMB 14,830/mt, and prices of Baohui, Qinxin and Shuikoushan around RMB 14,820/mt. Cargo holders moved goods actively due to rising zinc prices, but downstream buying interest was low, keeping overall transactions muted. Spot discounts of #0 zinc against SHFE 1309 zinc contract prices were between RMB 40-0/mt, with traded prices between RMB 14,810-14,850/mt.
Last week, LME zinc prices led increases of base metals, rising above the 60-day moving average. Will zinc prices extend increases this week?
A most recent SMM survey shows 47% market players believe zinc prices will hover at high levels this week. LME zinc prices will move between USD 1,900-1,950/mt, and SHFE 1309 zinc contract prices should struggle around the 60-day moving average, with spot prices close to SHFE 1309 zinc contract prices. Major economies will release their PMI this week, and the Reserve Bank of Australia, Bank of UK and European central bank will hold their interest rate meeting for June, while US will announce its non-farm data this Friday. US Chicago PMI released last Friday was 58.7, much better than forecasts, and US CCI also topped expectations. But the growth of initial jobless claims last week depressed job expectations. US Federal Reserve Chairman Bernanke expressed the Fed will trim Quantitative Easing if economic data continues to improve. Data released this week will be guidance for US QE policy in mid-June, which will increase market fluctuations.
China's official and HSBC's PMI was mixed, adding to market uncertainties towards economic outlook.
27% see zinc prices rising, believing LME zinc prices will rise to test USD 1,970-2,000/mt, and SHFE 1309 zinc contract prices will test RMB 15,000/mt, with spot discounts expanding to RMB 50-80/mt. European central bank will announce its interest rate on Thursday, and President Draghi will hold a press conference after the policy meeting. European central bank lowered its benchmark rate in May to a record low of 0.50%, so the market believes the meeting will result in no change in the rate. Draghi stated recently the central bank will use negative interest rate when necessary, but even if the rate remains unchanged, the euro will gain ground, and will boost commodity prices. SHFE and LME zinc inventories have been falling for over a week, with canceled warrants surging to 65%, backing zinc prices to strengthen. Besides, those investors who bought copper and sold zinc closing positions will drive up LME zinc prices. But increases of SHFE and spot zinc prices will be limited due to sluggish demand, and will refrain LME zinc price gains.
26% are bearish towards zinc price trends, believing LME zinc prices and SHFE 1309 zinc contract prices will fall to test moving averages, with spot premiums against SHFE 1309 zinc contract prices widening to RMB 20-50/mt.
The galvanizing market has been anemic after the Chinese New Year holiday, so, when combined with the onset of the low demand season, inventories across China stand high. Steel plants continued to lower ex-works prices of galvanized plate, sheet and strip, with pessimism prevailing in the market, and traders all depleting inventories. The end of the subsidy policy to home appliance in June will also distress market confidence.