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

SHANGHAI, Jun. 18 (SMM) - SHFE 1309 zinc contract prices opened RMB 20/mt higher at RMB 14,530/mt, boosted by LME zinc prices. IMF anticipates that the US Federal Reserve will maintain massive assets purchasing plan until at least late 2013, helping ease market concerns and driving shorts out of the market. In this context, SHFE zinc prices rose after opening, encountering resistance at RMB 14,600/mt, touching as high as RMB 14,610/mt, and closing at RMB 14,580/mt, up RMB 70/mt or 0.48%.

Trading volumes of SHFE 1309 zinc contracts decreased by 19,038 lots, to 24,258 lots, and positions decreased by 946 lots to 120,498 lots. Trading volumes of SHFE 1310 zinc contracts decreased by 14,824 lots, to 24,876 lots, and total positions increased by 4,142 lots to 90,822 lots.

SHFE zinc prices soared but met resistance at RMB 14,600/mt. Spot premiums of #0 zinc narrowed to RMB 80-110/mt against SHFE 1309 zinc contract prices, with traded prices between RMB 14,670-14,700/mt, and with prices of imported #0 zinc around RMB 14,650/mt. #1 zinc prices were between RMB 14,630-14,640/mt. market sentiment improved, with short momentum weakening, and cargo holders' willingness to sell goods increased. But downstream buyers and traders remained cautious due to high premiums and cash flow tightness, keeping transactions quiet.

The market was plagued with concerns that the US Federal Reserve will back off QE3 and short momentum, weighing down LME zinc prices below all moving averages. Will zinc prices rebound this week?

A most recent SMM survey shows that 50% market participants believe LME zinc prices should move between USD 1,850-1,880/mt, and SHFE 1309 zinc contract prices will move between RMB 14,500-14,700/mt, with spot premiums between RMB 80-130/mt. The market focuses its attention on the Fed's June policy meeting and Bernanke's statement. The Fed will not change its USD 85 billion/month government bond purchasing plan at the meeting, but any clue when it will scale back debt purchasing will cause the market to fluctuate, with investors standing on the sidelines before the decision. Bank of UK will release its minutes of meeting, and the market will focus its attention on the change of leadership of the bank. The Bank of UK will have no reason to further loosen monetary policy before the release of inflation report early August. SHFE zinc prices are well supported at RMB 14,500/mt, but resistant to both increases and declines.

37% believe LME zinc prices will rise above moving averages, and SHFE 1309 zinc contract prices will rally to RMB 14,800-14,900/mt, with spot premiums narrowing to RMB 50/mt. Reserve Bank of Australia will release its meeting minutes this week. The bank announced it would maintain existing policy unchanged early June, but will likely further loosen its monetary policy. A Euro zone finance minister meeting will be held this Thursday, which is expected to announce some measures to ease the high unemployment rate. In China, operating rates at domestic zinc smelters fell recently, and some large smelters plan to cut or suspend production in June, so operating rates are expected to drop further. This will reduce supply of some brands, and boost zinc prices.

The remaining 13% see zinc prices falling this week, believing LME zinc prices will test USD 1,830/mt after falling below USD 1,850/mt, and SHFE 1309 zinc contract prices will fall further to RMB 14,300/mt once losing RMB 14,500/mt level, with spot premiums expanding to RMB 150/mt. Euro zone and many other European countries will release their June flash PMIs. The data is expected to improve but will barely break through 50. Besides, European stocks markets continued to plummet recently, and ZEW June economic sentiment index may distress the market, weighing down base metals prices. China's domestic industry power consumption growth in May slowed MoM, pointing to a downshift in domestic economic growth. HSBC's June PMI for China is expected to fall. Cargo holders' willingness to hold prices firm weakened due to cash flow problem, while downstream buying interest also decreased, weighing down zinc prices.