SHANGHAI, Jul. 2 (SMM) - SHFE 1310 zinc contract prices opened slightly higher at RMB 14,420/mt, and soared to test RMB 14,500/mt as buyers rushed to the market. The Shanghai Composite Index bottomed before rising in the afternoon, closing the day up 0.81%. Drove up by LME zinc prices, SHFE 1310 zinc contract prices broke through RMB 14,500/mt in the afternoon, inching up to RMB 14,530/mt, touching RMB 14,545/mt, and finally closing at RMB 14,540/mt, up RMB 135/mt or 0.94%. Trading volumes increased by 5,818 lots, to 54,638 lots, and total positions decreased by 572 lots to 160,008 lots.
#0 zinc prices were between RMB 14,570-14,590/mt, with spot premiums between RMB 80-100/mt against SHFE 1310 zinc contract prices. #1 zinc prices were around RMB 14,540/mt. SHFE 1310 zinc contract prices encountered resistance at RMB 14,500/mt. Market cash flow problem eased, increasing cargo holder willingness to hold prices firm, and hedging operation also pushed up spost premiums. But downstream enterprises remained pessimistic, when combined with nearing low demand season for zinc, most of them purchased as needed, keeping transactions quiet. SHFE zinc prices continued to climb in the afternoon, and #0 zinc prices rose to RMB 14,600-14,610/mt, with spot premiums between RMB 70-80/mt against SHFE 1310 zinc contract prices.
Concerns over China's capital crunch weighed down zinc prices last week. Will zinc prices rebound this week?
A most recent SMM survey shows 57% market participants are neutral, believing LME zinc prices will move between USD 1,850-1,875/mt, and SHFE 1310 zinc contract prices will hover between RMB 14,400-14,600/mt, with spot premiums between RMB 80-100/mt against SHFE 1310 zinc contract prices.
The market anticipates the number of US non-farm employment in June will increase by 170,000, slightly fewer than the 175,000 increase in May. Better-than-expected data will enhance speculations that the US Federal Reserve (Fed) will back off QE3, causing markets to fluctuate more. Market players should remain cautious ahead of the data. Many countries in the euro zone and Europe will release their June manufacturing PMIs, which is expected to improve, but standing below 50, so the market will not be boosted.
A SMM survey shows that operating rates at domestic galvanizers, zinc oxide producers and zinc alloy producers fell in May, and should continue to fall during June-July due to sluggish orders and rising temperatures. As steel plants all lowered galvanized product prices in July, but downstream purchasing did not increase, forcing steel plants to curb raw material inventories. That is unfavorable for zinc prices.
43% are optimistic toward zinc prices, believing LME zinc prices will break through USD 1,880/mt, and SHFE 1310 zinc contract prices will rise to test the 60-day moving average, with spot premiums narrowing to RMB 50-80/mt.
The Reserve Bank of Australia (RBA), European Central Bank and Bank of UK (BOK) will announce their interest rate decision for July this week. UK's economic data has been positive after the Chinese New Year holiday, and the market is generally optimistic towards UK's economic recovery despite its Q1 GDP shrank. BOK President Mark Carney is expected to maintain the benchmark rate and assets purchasing scale unchanged in the first month of his term; RBA and ECB will also likely maintain existing policy. But the central banks will likely emphasize their stances in favor of additional easing policies, which will positively affect base metals market.
As China's capital crunch eased, cargo holders will hold prices firm, while smelters will also slow their sales, which will help zinc prices stop falling and rise. LME zinc inventories continued to fall, with declines in excess of 4,000 mt last week, and SHFE inventories fell by 9,059 mt last week. SMM sources report inventories in Shanghai, Tianjin and Guangdong continue to fall, and when combined with smelters conducting maintenance during July-August, zinc prices will gain ground.