SMM Zinc Market Morning Review (2013-6-14)

SHANGHAI, Jun. 14 (SMM) – Asian and European stocks markets overnight extended declines, especially emerging markets dropped sharply, spurring market concerns over base metal demand. LME zinc prices opened at USD 1,871/mt, struggling around USD 1,870/mt during Asian trading, and encountering resistance at the 5 and 30-day moving average. Positive US data overnight fueled expectations that the US Federal Reserve will taper off QE3, pushing down LME zinc prices to USD 1,836.8/mt, finally closing at USD 1,847/mt, down USD 22.8/mt or 1.22%. Trading volumes increased by 1,095 lots, to 12,274 lots, and total positions increased by 2,154 lots, to 266,212 lots. LME zinc inventories fell by 4,625 mt, to 1,091,625 mt.

US retail sales rose 0.6% MoM in May, a new 3-month high, while core retail sales also climbed 0.3%, both beating forecasts by economists. Initial jobless claims fell 12,000 to 334,000 last week, suggesting mild recovery in the US labor market. These figures signal mild growth in the US economy, but it is still uncertain whether the US economy is now strong enough for the US Federal Reserve (Fed) to bring QE3 to an end. In this context, investors sold the US dollar, sending the US dollar index and base metals down. Fed Chairman Bernanke will deliver a bi-annual testimony to the Congress, which may offer some clues.

Italy auctioned EUR 3.415 billion of government bonds to be matured by 2016, with the average yield growing from May's 1.92% to 2.38%. The country also auctioned EUR 1.698 billion worth of government bonds to be matured by 2018, with the average yield increasing to 2.61% from 2.44%. European shares mostly closed down, unfavorable for base metals.

Asian stocks generally suffered losses yesterday, with the Nikkei plummeting 6.4%, the lowest since April 4 when aggressive monetary stimulus was rolled out. Sayuri Shirai, member of the Policy Board of the Bank of Japan (BOJ) voiced worries over Abenomics. She believes Japan's CPI will not grow in the fiscal year of 2014 and warns downward risks facing the Japanese economy. The BOJ decided Tuesday to keep monetary policy unchanged, disappointing some investors and was the major cause behind the slump in stock markets. The Shanghai Composite Index tumbled 2.83% to below 2,200 points and hit a new low since mid-December last year on the first trading day following the Chinese Dragon Boat Festival due to sell-off. This dampened sentiment in base metals markets.    

The US dollar index lost 0.36%, a fresh low since late February. US stocks markets closed with gains. The euro against the US dollar recorded a 4-day winning streak and hit a new high since late February. Asian stocks generally closed down. LME base metals ended in negative territory across the board.

LME zinc prices will move between USD 1,835-1,865/mt today, and SHFE 1309 zinc contract prices should fluctuate between RMB 14,450-14,580/mt, with spot prices RMB 80-130/mt above SHFE 1309 zinc contract price.