SHANGHAI, Jul. 16 (SMM) –
LME zinc rose steadily last week, but the US dollar index fell back from highs after Greece secured 6.8 billion in economic aid from the IMF and other euro zone nations. This positive news buoyed LME zinc prices, which rose by 1.81% and returned above the 20-day moving average. The cut in global growth forecasts by the IMF and the credit rating downgrade for Italy by Standard & Poor's still did not diminish the strong support for zinc, which still advanced as the US dollar index retreated to the 5-day moving average. The market was also calmed by comments of continued support for QE3 by US Federal Reserve Chairman Bernanke. The US dollar index slid to 83, however, allowing LME zinc prices to rally to around USD 1,900/mt.
Prices for SHFE 1310 zinc, the most actively traded contract, halted declines and rebounded last week. The contract moved below the 10-day moving averages early last week, but disappointing CPI, PPI and trade data from China had a limited impact since zinc prices later rebounded above the 10-day moving average. Rising LME zinc and stock prices also pushed up SHFE zinc briefly to RMB 14,880/mt.
In China's spot markets, premiums for #0 zinc held stable between RMB 100-120/mt, but narrowed to RMB 60-80/mt as prices advanced. Smelters were not aggressively selling goods, which limited market supply. Some middlemen sold goods at highs as zinc prices rose, but trading sentiment was soft due to a lack of arbitrage opportunities. Downstream producers were also wary of purchasing, with only limited replenishments made earlier in the week. Premiums for goods in Guangdong province over Shanghai fell slightly last week. Production cuts at Zijin continued to affect the Tianjin market, but the arrival of other branded products was normal, with prices higher than those in Shanghai.
A series of economic reports will be released this week. The results of euro-zone industrial production data in May and the US Michigan Consumer Sentiment Index for July are expected to show slight improvement, which will help stabilize the US dollar index, but weigh down zinc prices. China will announce its 2Q GDP growth early in the week, with markets taken a gloomy outlook on that result. Should the Shanghai Composite Index regain ground and stabilize at 2,000, zinc prices will find support. US housing starts in June and manufacturing activity will also affect the US dollar and base metals prices.
In the coming week, LME zinc is expected to fluctuate around USD 1,900/mt, with prices between USD 1,870-1,930/mt. SHFE 1310 zinc prices will move in the RMB 14,600-14,800/mt range. Spot premiums over SHFE three-month zinc prices will remain strong between RMB 80-120/mt.