SMM Zinc Market Morning Review (2013-10-8)

SHANGHAI, Oct. 8 (SMM) – As risk aversion increased during the Chinese National Day holiday due to the shutdown of US government, base metals prices were weighed down, and the release of major economic data including US non-farm employment figures were delayed.

LME zinc prices opened at USD 1,873.8/mt, and then hovered between USD 1,864-1,880/mt, and finally closed at USD 1,878/mt, up USD 6/mt. Trading volumes decreased by 1,505 lots, to 4,945 lots, and total positions decreased by 2,394 lots, to 279,866 lots. LME zinc inventories fell by 3,950 mt, to 1,009,075 mt.

Parts of US federal government shut down at 12:01 a.m. ET last Tuesday after lawmakers in the House and the Senate failed agree on a spending bill to fund the government, the first shutdown since 1996. No progress has been made over the negotiation between two parties during the week after the shutdown. US President Barack Obama said the government will not initiate talks unless the House of Representatives agrees on the government financing bill. John Boehner, Speaker of the House of Representatives vowed not to raise debt ceiling without a “serious conversation” about what is driving the debt. Markets expect that a re-opening of US government will be impossible for the immediate term. This sent US stock markets down. Release of US non-farm payrolls for September was delayed due to the government shutdown. 166,000 jobs were added in September, missing forecasts, according to the ADP National Employment Report. The reading in August was revised down to 159,000.       

The World Bank cut its economic growth forecasts for East Asia yesterday. The bank also revised down its projections for China’s economic growth for 2013 by 0.8% since the Chinese economy has yet to transform to a consumption-driven growth model. China’s official manufacturing PMI for September hit a 17-month high of 51.1. The figure marks a third straight month of growth, but still fell short of the 51.6 expected. HSBC’s final China manufacturing PMI released earlier was well below flash reading, indicating the upward momentum in the world’s second largest economy is not strong enough, offering little support to base metals prices.    

The US dollar index slipped below 80. The Dow Jones tumbled below 15,000 points to a one-month low. Base metals on the London Metal Exchange were mixed. 

Investors did not sell off goods despite US federal government closed for over 7 days, but will remain cautious until the debt crisis is resolved. LME zinc prices are expected to move between USD 1,870-1,890/mt today, and SHFE 1312 zinc contract prices should hover between RMB 14,630-14,730/mt, with spot premiums between RMB 100-150/mt against SHFE 1312 zinc contract prices.