SHANGHAI, Jun. 25 (SMM) - SHFE 1310 zinc contract prices opened RMB 65/mt higher at RMB 14,435/mt, as LME zinc prices overnight closed the day up last Friday. The Shanghai Composite Index tumbled 5.3%, falling below 2,000, depressing market sentiment, and since short momentum mounted, SHFE zinc prices dipped to RMB 14,260/mt, finally closing at RMB 14,280/mt, down RMB 90/mt or 0.63%. Trading volumes decreased by 15,928 lots, to 72,218 lots, and total positions increased by 6,712 lots to 145,914 lots. SHFE copper prices plunged by 2.42%, while SHFE zinc prices should fall to test RMB 14,100-14,000/mt.
#0 zinc prices were between RMB 14,450-14,480/mt, with spot premiums between RMB 70-100/mt against SHFE 1310 zinc contract prices. #1 zinc prices were around RMB 14,440/mt. Smelters were still actively moving goods due to cash flow problem. As SHFE zinc prices moved lower, spot premiums expanded, causing arbitrage traders to move goods, keeping goods supply ample. But downstream buyers purchased as needed. Prices of the Shuangyan brand were between RMB 14,460-14,480/mt, and Yuguang and Shuikoushan prices averaged RMB 14,450/mt. SHFE zinc prices plummeted in the afternoon, and #0 zinc prices fell to RMB 14,420-14,440/mt, with spot premiums expanding to RMB 100-120/mt.
Will zinc prices stop falling this week? A recent SMM survey shows 60% of market participants believe LME zinc prices will fall to test USD 1,800/mt, and SHFE 1310 zinc contract prices will drop to RMB 14,100/mt, and point towards RMB 14,000/mt once falling below that level, with spot premiums expected to exceed RMB 100/mt. The US Federal Reserve's (Fed) statement that it will quit QE3 later this year pushed up the US dollar index, and optimistic new home sales and personal income figures will also give support to the US dollar index, unfavorable for zinc prices to stop falling. Markets turned their focus to Greek problem. A lawmaker of the small Democratic Left party said on Friday his party should leave the coalition government of Prime Minister Antonis Samaras. Bailout to Greek banks that went bankruptcy and measures to cope with crisis in the banking sector released at the EU summit this week will affect foreign exchange market. Besides, investors' expectations that the Bank of UK will loosen its monetary policy soon decreased due to improving economy.
A slowing Chinese economy and tight cash flows pushed up short-term interest rates, increasing the delivery of goods for long-term contracts before the month's end. SMM sources report that orders from galvanizers were down, so major Chinese steel plants cut galvanized ex-works prices for July and reined in raw material inventories, which will weigh on zinc prices.
40% believe LME zinc prices will move between USD 1,820-1,850/mt, and SHFE 1310 zinc contract prices will fluctuate between RMB 14,300-14,500/mt, with spot premiums between RMB 50-100/mt.
China's zinc output in May was 443,000 mt, down 3,000 mt from April. Smelters including Yuguang and Zijin cut output in June, and sluggish zinc prices also forced some smelters to conduct maintenance, so zinc output in June should fall further. SMM sources reported zinc inventories in Tianjin, Shanghai and Guangdong have been falling since mid and late February, with inventories in Shanghai falling below 300,000 mt for the first time since March 2009. As more smelters will cut output, zinc inventories should continue to slide, which will help zinc price stop falling.