SHANGHAI, Jul. 30 (SMM) - SHFE 1310 zinc contract prices opened slight lower at RMB 14,650/mt, and then hovered around the 10-day moving average. LME zinc prices continued to weaken, which distressed market sentiment. As a large number of longs closed positions in the afternoon, SHFE zinc prices inched down, finding support at RMB 14,600/mt, and closing at RMB 14,605/mt, down RMB 60/mt or 0.41%. Trading volumes of SHFE 1310 zinc contract decreased by 7,968 lots, to 12,876 lots, and total positions decreased by 3,966 lots, to 115,566 lots. Total trading volumes of SHFE 1311 zinc contract decreased by 3,364 lots, to 36,182 lots, and total positions increased by 786 lots, to 104,162 lots. SHFE 1311 zinc contract became more actively traded.
#0 zinc prices were between RMB 14,740-14,770/mt, with spot premiums of RMB 90-120/mt against SHFE 1310 zinc contract prices. #1 zinc prices were between RMB 14,710-14,730/mt. As SHFE zinc prices edged up in the morning, spot premiums expanded. Smelters were actively moving goods, but spot supply tightness allowed cargo holders to hold prices firm. Traders stood on the sidelines due to month-end factor, purchasing at lower prices, and downstream buyers purchased modestly ahead of the weekend. Transactions did not improve. In the afternoon, SHFE zinc prices fell further, and #0 zinc availability was extremely low, with only Shuangyan brand standing firm between RMB 14,670-14,680/mt, with spot premiums of RMB 150-160/mt against SHFE 1310 zinc contract prices.
LME zinc prices soared initially but then fell last week. What's zinc price trends this week?
A most recent SMM survey shows 40% market players are optimistic, believing LME zinc prices will surge to USD 1,900/mt, and SHFE 1311 zinc contract prices will challenge RMB 14,890/mt, with spot premiums narrowing to RMB 100/mt against SHFE 1311 zinc contract prices. PMI reports from many European countries, Gfk August CCI from Germany and UK as well as euro zone unemployment rate will be released this week. If optimistic, commodity prices will rebound.
HSBC's July PMI for China moved lower, causing selloffs in financial and commodity markets. China's official PMI will be released this week, which will not deteriorate and ease market concerns.
Cargo holders in east China hold prices firm, with spot premiums of #0 zinc against SHFE 1311 zinc contract prices expanding to RMB 140-150/mt, their highest in the year, and are expected to boost zinc prices. Some large steel plants will likely raise their ex-works prices this week, and will actively purchase raw materials due to firm galvanizing steel market, which will lend support to zinc prices.
33% investors see zinc prices falling, believing LME zinc prices will dip to USD 1,810/mt, even falling below USD 1,800/mt. SHFE 1311 zinc contract prices will fall to test RMB 14,300/mt, with spot premiums expected to expand to RMB 150/mt. JP Morgan announced it would exit commodity market, which triggered market apprehension and causing selloffs. This will weigh down commodity prices in the near future. LME zinc inventories remained around 1 million mt, and long momentum weakened, which will negatively affect zinc prices.
The NBS released domestic scale-efficiency industrial enterprises realized RMB 2.58 trillion profits in 1H this year, up 11.1% YoY, with the growth down 1.2 percentage points compared to the first five months. Total margins in June were RMB 502.42 billion, up 6.3% YoY. Margins of major business were RMB 476.89 billion, down 2.3%, while margins of major business in May rose 8.8% YoY. Besides, the list of outdated capacity elimination in 19 industries was released, and the market was concerned slower Chinese economic growth and sliding manufacturing will reduce demand for base metals.
27% are neutral towards zinc price trends this week. LME zinc prices will move between USD 1850-1870/mt, and SHFE 1311 zinc contract prices will hover between RMB 14,450-14,570/mt, with spot premiums around RMB 150/mt. European central bank and Bank of UK will hold their interest rate meetings this week, while US Federal Reserve's rate decision takes center stage. Wall Street Journal's Jon Hilsenrath believes the Fed will likely maintain existing bond purchasing scale, but will also likely announce to scale back QE3 in September given recent positive economic news. Zinc prices should feel both support and resistance, undergoing corrections this week.