SMM Zinc Weekly Price Review and Forecast (10-14 Jun. 2013)

SHANGHAI, Jun. 8 (SMM) –
Review
Last week, LME zinc prices surged before falling back to USD 1,920-1,960/mt following release of negative macroeconomic news. LME zinc prices were weaker than copper, aluminum and nickel prices due to poor market fundamentals, rising briefly to USD 1,970, a record high from mid-March, but meeting strong resistance at USD 1,960/mt. The US dollar index plunged to as low as 81.077 late in the week due to sluggish US economic data, a record low from late February. LME zinc prices fell below the 5-day moving average as some investors exited the market after profit-taking following the release of pessimistic US non-farm employment data and since additional easing monetary policies in euro zone failed to materialize.

SHFE 1309 zinc contract prices struggled around the 60-day moving average, moving in a narrow RMB 170/mt range between RMB 14,800-14,920/mt. Continuously falling domestic stock prices also distressed market sentiment, while large numbers of longs and shorts left the market to avoid risks before the Dragon Boat Festival in China. A falling SHFE/LME zinc price ratio also prompted large numbers of shorts to close positions. By noon on last Friday, positions of SHFE 1309 zinc contract prices shrank by nearly 50,000 lots, with total positions falling by nearly 100,000 lots.

#0 zinc prices were flat at SHFE 1309 zinc contract price levels. Spot zinc prices climbed to a three-month high and gave cargo holders incentives to sell goods, but spot supply shortages persisted since smelters cut output over the past two months. Downstream buying interest was low before the holiday since many enterprises had built stocks at lower prices during May. Since Hanzhong Zinc restarted production and supply of Qinxin, Shuikoushan and Baohui brands were all down, the price spread between Hanzhong and the latter three brands narrowed from RMB 40-50/mt, to RMB 10-20/mt.
Forecast
There are only two trading days in the coming week. Disappointing May trade data for China announced last Sunday included fixed-assets investments, consumer goods retail sales, industry value-added and CPI figures. Euro zone economic news was also downbeat as well, but May CPI for major economies will become the focus of markets in the coming week, with US non-farm employment data also expected. Sluggish US non-farm employment and other job market indicators will guide monetary policy decisions by the US Federal Reserve and  weigh on base metals prices. Upbeat data will enhance expectations that the US Federal Reserve will scale back QE3 stimulus policies, but will also push down zinc prices.

The US dollar index plummeted to 81.077 last week, hitting a new low from late February. Strong US non-farm employment data will boost the US dollar index, but will not completely  reverse recent losses. LME zinc prices should continue to struggle around the 5-day moving average, lacking upward momentum, while SHFE 1309 zinc contract prices will continue to test the 60-day moving average. Downstream enterprises will enter the market after the holiday, pushing up spot premiums of #0 zinc to RMB 0-30/mt.