SMM Zinc Market Morning Review (2013-6-17)

SHANGHAI, Jun. 17 (SMM) – US economic data released last Friday mostly fell short of expectations. The IMF anticipates that the US Federal Reserve (Fed) will maintain massive assets purchasing plan to at least late 2013, and lowered expectations of US economic growth in 2014 from 3.0%, to 2.7%, undermining market expectations that the Fed will back off QE3, with investors remaining cautious ahead of the Fed's June interest rate decision and Bernanke's statement. LME zinc prices overnight opening at USD 1,849/mt. Asian stocks markets plummeted before rebounding, giving support to LME zinc prices, but meeting resistance at the 5-day moving average, touching RMB 1,864.3/mt, and finally closing at RMB 1,860.25/mt, up USD 13.25/mt or 0.72%. Trading volumes decreased by 3,511 lots, to 8,763 lots, and total positions increased by 5,502 lots, to 271,714 lots. LME zinc inventories fell by 4,125 mt, to 1,087,500 mt.

University of Michigan's initial June CCI for US fell to 82.7, but was still the second highest over the past eight months, and the figure in May was at the highest in nearly 6 years, but that does not mean consumers' sentiment turned pessimistic. Sub-item index is expected to rise to 76.7 in June, the highest since November 2012; US May manufacturing output rose by 0.1% after sliding for two consecutive months; US capacity utilization rate in May was 77.6%, lower than 77.8% in the previous month or 77.8% expected. US consumer outlook is positive, but the manufacturing is sluggish due to reasons other than consumer demand. US manufacturing will be weighed down further in 2H if consumer spending slows.

The Fed will hold its monetary policy meeting during June 18-19, and will decide when to cut its USD 85 billion debt purchasing. US economic growth is relatively slow, and inflation rate is much lower than the 2% target set by the Fed. Besides, the International Monetary Fund (IMF) lowered its forecast for US economic growth in 2013 and 2014 on June 14, anticipating US economic growth will fall to 1.9% in 2013, and downgrading its expectations of US economic growth in 2014 by 0.3 percentage point to 2.7%. IMF anticipates inflation rate will remain mild next year, attacking the Fed's intention to quit QE3. The US dollar index maintained downward track during the week ending June 14, and failed to rebound after losing 82.40. That may be because large investors pushed down the US dollar index.

The Athens Journalists' Union (ESIEA) decided June 13 a media strike over Greek public broadcasters should go on strike until Tuesday (June 18). Taking Greece's 30% unemployment rate into consideration, the stability in the euro zone will hardly sustain for a long term.

According to the National Energy Administration, China's power consumption in the industry sector in May grew 4.67%, which is nearly 3 percentage points slower than the previous month. China's GDP growth in 2H will likely drop below 7%, and the likelihood is that the growth will slow to 7.4% in Q3, and fall further to 7.2% in Q4. China's economic growth is slowing, as financing costs rise, it will be difficult for local governments to maintain construction projects, and this will affect fixed assets investments in the following months. But since Chinese government will unlikely release large scale stimulus policies in the near term.

LME zinc prices will move between USD 1,840-1,870/mt today, and SHFE 1309 zinc contract prices should fluctuate between RMB 14,480-14,570/mt, with spot prices RMB 90-130/mt above SHFE 1309 zinc contract price.