SMM Zinc Market Morning Review (2013-6-28)

SHANGHAI, Jun. 28 (SMM) – LME zinc prices overnight opened at USD 1,836.3/mt. China's scale-efficiency industrial enterprises realized margins of RMB 470.55 billion in May, up 15.5% YoY, helping ease market apprehension of cash flow problem, and boosting LME zinc prices to break through the 5-day moving average, challenging USD 1,850/mt level. Many US Federal Reserve officials stated in an effort to relieve concerns of QE exit, expressing they will not scale back assets purchasing until US real economy recoveries as the FOMC (Federal Open Market Committee) expected, and will not raise short-term interest rates any time soon. Coupled with upbeat employment and home sales data, market risk appetite was boosted. LME zinc prices dipped before rising in the morning session during US trading hours, once touching USD 1,854/mt, and finally closing at USD 1,849/mt, up USD 8.5/mt or 0.46%. Trading volumes decreased by 929 lots, to 5,530 lots, and total positions decreased by 2,761 lots, to 266,097 lots. LME zinc inventories fell by 5,250 mt, to 1,057,700 mt. China's cash flow problem takes center stage. Due to ongoing market concerns, zinc prices should continue to encounter resistance.

Initial jobless claims in the US in the week ending June 22 fell to 346,000. Personal income and spending in the US in May both grew more than expected, pushing the US dollar index above 83. However, William Dudley, President of the Federal Reserve Bank of New York and Dennis Lockhart, President of the Federal Reserve Bank of Atlanta said investors had overreacted to Fed Chairman Bernanke's speech, claiming that the Fed will not taper off debt-buying program until US economy recovers as the FOMC expects and that there is still a long way to go before the Fed hikes interest rate. Their remarks helped appease market concerns, pushing the US dollar index and US 10-year government bond yields down while helping S&P's 500 Index record the biggest three-day gain since January.     

EU member reached consensus over rules for restructuring and liquidation of ailing banks on Thursday morning, which is designed to avoid government bankruptcy from banking crisis. The number of people out of work in Germany fell by some 12,000 on a seasonally adjusted basis in June, with the unemployment rate staying close to a post-reunification low at 6.8% following three consecutive months of growth. Economic Confidence Index in the euro zone climbed from 89.4 to 91.3 in June and Business Confidence Index also improved from -0.76 to -0.68.
  
In China, the stance of the People's Bank of China (PBOC) over the past couple of days helped alleviate worries over liquidity crunch. The State Council is urging the transformation of shantytowns to promote economic development and improve people's living standard. The State Administration of Foreign Exchange (SAFE) recently approved RMB 9.2 billion in RQFII and USD 900 million in QFII. A-shares fell at a slower pace.

European and US stocks generally closed up. LME base metals mostly closed with gains.

LME zinc prices will move between USD 1,830-1,860/mt today, and SHFE 1310 zinc contract prices should fluctuate between RMB 143,500-14,500/mt, with spot premiums against SHFE 1309 zinc contract prices between RMB 70-110/mt.