SMM Zinc Market Daily Review (2013-7-8)

SHANGHAI, Jul. 9 (SMM) - LME zinc closed lower last Friday, causing SHFE 1310 zinc contract to open lower at RMB 14,475/mt on Monday. After its opening, the most active SHFE zinc contract hit a high of RMB 14,480/mt before immediately falling back to RMB 14,410/mt. Later, SHFE zinc for October delivery moved within RMB 14,425-14,445/mt, and finally ended the day at RMB 14,425/mt, down RMB 70/mt or 0.48%. Trading volumes added 1,106 lots to 47,586 lots, and positions also increased 3,864 lots, to 160,452 lots. Further declines are expected in SHFE three-month zinc contract prices.

Mainstream traded prices of #0 zinc were RMB 14,530-14,560/mt on Monday, RMB 100-120/mt higher than SHFE 1310 zinc contract prices. #1 zinc was traded around RMB 14,500/mt. The most active SHFE zinc contract opened lower today. Smelters held back goods against falling zinc prices. Middlemen were little interested in buying out of bearishness over future prices, and downstream producers largely purchased to need, depressing overall trading.

US June non-farm employment data released last Friday was upbeat, pushing up the US dollar index and weighing down zinc prices below all moving averages. Will zinc prices extend declines this week?

A most recent SMM survey shows 60% market players are neutral towards zinc prices. May industry production figures from UK, Germany and euro zone will be released this week, which are positive based on improving euro zone manufacturing PMI. This helped ease concerns over deteriorating euro zone economy. LME inventories continued to fall. By last Friday, LME zinc inventories fell to 1.03 million mt, down nearly 30,000 mt from a week ago, giving support to LME zinc prices. LME zinc prices are expected to challenge the 20-day moving average, moving between USD 1,840-1,860/mt.

As Chinese credit crunch eased, A-shares stopped falling and rebounding, and are expected to struggle around 2,000. SHFE 1310 zinc contract prices will move between RMB 14,400-14,550/mt. Due to ongoing maintenance at smelters and unwillingness to sell goods, total inventories in China’s major three trading regions were a low 421,400 mt, with spot premiums expected to be RMB 80-120/mt.

40% market players believe zinc prices will extend declines. US June non-farm employment data improved noticeably, with the number of employment increasing by 195,000, enhancing market expectations that the US Federal Reserve will scale back QE. This pushed up the US dollar index. The positive University of Michigan’s July CCI for US to be released this week will hold the US dollar index firm and weighing down base metals prices. Besides, concerns that whether or not Greece will receive bailout funds continued. LME zinc prices will sink to USD 1,820-1,840/mt.

As downstream consumption weakens, and due to sluggish LME zinc prices, SHFE 1310 zinc contract prices will fall to RMB 14,300-14,400/mt, with spot premiums between RMB 120-140/mt.