SHANGHAI, Jul. 23 (SMM) - SHFE 1310 zinc contract prices opened slightly higher at RMB 14,560/mt. Asian-Pacific stocks mostly rose, with China's A-shares opening low but moving higher, closing up 0.61%, which boosted market confidence. But longs were cautious ahead of the release of HSBC's July PMI for China, while shorts left the market after profit-taking, driving up SHFE zinc prices to RMB 14,600/mt, but meeting resistance at the 10-day moving average. Finally, SHFE zinc prices closed at RMB 14,625/mt, up RMB 80/mt or 0.55%. Trading volumes of SHFE 1311 zinc contract increased by 7,994 lots, to 33,736 lots, and total positions decreased by 10,288 lots, to 127,842 lots. Trading volumes increased by 17,572 lots, to 84,694 lots, and total positions increased by 4,232 lots, to 310,968 lots.
#0 zinc prices were between RMB 14,670-14,700/mt, with spot premiums of RMB 80-100/mt against SHFE 1310 zinc contract prices. #1 zinc prices were between RMB 14,650-14,660/mt. SHFE zinc prices rebounded, but spot prices resisted increases due to soft demand, with spot premiums narrowing. Smelter unwillingness to sell goods eased, but mostly took a wait-and-see attitude, and downstream buyers also lacked interest to purchase goods. Traders purchased modestly due to market pessimism, leaving transactions quiet. SHFE zinc prices edged up in the afternoon, and #0 zinc prices were between RMB 14,700-14,720/mt, with spot premiums of RMB 80-90/mt against SHFE 1310 zinc contract prices.
Macroeconomic news released last week was generally negative, which weighed down zinc prices. What's zinc price trends this week?
50% market players surveyed by SMM are neutral towards zinc price trends, believing LME zinc prices will move between USD 1,850-1,900/mt, and SHFE 1311 zinc contract prices should move around RMB 14,600/mt, with spot premiums between RMB 70-100/mt. The market will lack important news this week. Recent US economic data shows US economy is recovering mildly, and data to be released this week is optimistic, which boosted market optimism and increased speculations that the US Federal Reserve will taper off QE3 sooner than later. This will affect zinc prices.
PMIs from many European and euro zone countries will be released this week, which are expected to top June's level, but will barely support zinc prices to strengthen.
A recent SMM survey shows the average operating rate at zinc smelters in June was 70.38%, down 0.62% MoM. Smelters did not cut output significantly as TC remained firm due to ample zinc concentrate supply. SMM understands supply in the spot market is sufficient, which is unfavorable for metals prices.
37% are bullish towards zinc prices, believing LME zinc prices will soar to USD 1,922.8/mt, and SHFE 1311 zinc contract prices will challenge RMB 14,800/mt, with spot premiums narrowing to RMB 50/mt.
Japan's ruling coalition led by Shinzo Abe won a majority of seats in the upper house of parliament in Sunday's election, which will gives his party a stronger mandate to implement reforms aimed at invigorating the country's economy and a stronger control over both houses of parliament.
The People's Bank of China (PBOC) announced last Friday it will cancel the minimum limit of 0.7 times for interest rates by financial institutions. This will help reduce financing costs for enterprises and promote development of the real economy. Base metals prices will gain traction for the near term as a result.
The remaining 13% are bearish, believing LME zinc prices will fall to test USD 1,850/mt, and will point towards USD 1,820-1,830/mt if prices fall below that level. SHFE 1311 zinc contract prices will fall to test RMB 14,400/mt, with spot premiums unlikely break through RMB 130/mt. The negotiation of Portugal's three parties failed. Whether or not Portugal will receive additional bailout triggered market concerns. July PMIs from many countries will be released this week, which is pessimistic in the low demand season, and will weigh on base metals prices.
China's domestic spot markets are not optimistic. SMM statistics show inventories in Shanghai, Tianjin and Guangdong were 419,300 mt, growing on a MoM basis again. Downstream demand was soft. Although galvanized product prices in many regions rose last week, end-user demand did not improve. Besides, North China born the brunt of pollution control policies, which also pushed down zinc prices. SMM sources report about 2,000 mt/day were shipped out of Shanghai, still a low level.