SMM Zinc Weekly Price Review and Forecast (22-26 Jul. 2013)

SHANGHAI, Jul. 22 (SMM) –

Review

LME zinc prices lost early gains last week following the release of negative macroeconomic news. Many institutions lowered expectations for 2013 GDP growth in China, as well as base metals prices. LME zinc price declines were limited early last week, with prices only falling to USD 1,880/mt. As market expectations grew that the US Federal Reserve would scale back QE3 sooner than later, the US dollar index soared to 83. Chinese Finance Minister Lou Jiwei's statement also distressed markets, especially with regard to future demand for zinc in China. In response, LME zinc prices fell to USD 1,850/mt on heavy selling pressure.

Dragged down by LME zinc prices, SHFE 1310 zinc contract prices lost early week gains, falling below RMB 14,600/mt. SHFE 1310 zinc contract prices found support and moved narrowly between RMB 14,650-14,730/mt during the first half of last week, but fell below RMB 14,600/mt later in the week as LME zinc prices moved lower. By midday last Friday, trading volumes had fallen by 166,000, to 365,000 lots, and total positions decreased by 5,860, to 312,000 lots. Spot premiums for #0 zinc were RMB 70-90/mt higher than SHFE 1310 zinc contract prices during the first half of the week, but later expanded to RMB 90-110/mt as SHFE zinc prices tumbled. SHFE 1310 contract prices remained above RMB 14,750/mt during the first three trading days, a monthly high, and was the second time since April prices exceeded  RMB 14,750/mt. Smelter willingness to sell goods increased slightly, but turned negative again as SHFE zinc prices fell sharply later in the week. Downstream enterprises were only purchasing as needed, with demand shrinking due to a lack of downstream orders. SMM sources report about 2,000 mt/day were shipped out of Shanghai, flat at last week's level. In Tianjin, stocks of Zijin, Hongye and Shuangyan brands were all up, and with the price spread with Shanghai narrowing to RMB 180/mt. The price spread between Guangdong and Shanghai remained between RMB 100-130/mt, with an average for the past two months of about RMB 100/mt, and deliveries in Shanghai falling short of 1%.

Forecast
US housing data and July PMIs from China and many European countries will be released this coming week, but markets are pessimistic and expect zinc prices to fall since the low demand season for many manufacturing sectors is underway. LME zinc prices may find strong support at USD 1,850/mt, but if prices fall below this level, prices will likely stabilize at USD 1,820-1,830/mt. In the coming week, the shift will be made to SHFE 1311 zinc contracts, with prices falling to test support at RMB 14,400/mt. With soft demand and growing inventories, spot premiums against SHFE three-month zinc contract prices will unlikely rise above RMB 130/mt.