SHANGHAI, Oct. 9 (SMM) - Risk aversion grew as US government shut down during Chinese National Day holiday, pushing down LME zinc prices and dragging down SHFE zinc prices. SHFE 1312 zinc contracts prices opened at RMB 14,700/mt, and fluctuated around RMB 14,720/mt during the day, dipping to as low as RMB 14,680/mt, with transactions muted. Near the end of trading, LME zinc prices soared, and combined with strengthening Shanghai Composite Index, SHFE zinc prices gain back some losses and closed at RMB 14,745/mt, down RMB 70/mt or 0.47%. Trading volumes decreased by 10,170 lots, to 14,586 lots, and total positions increased by 968 lots, to 114,174 lots. Trading volumes of SHFE 1401 zinc contract increased by 1,750 lots, to 28,132 lots, and total positions increased by 6,076 lots, to 106,016 lots. SHFE 1401 zinc contracts are expected to become the most actively traded one on Wednesday.
#0 zinc prices were between RMB 14,880-14,910/mt, with spot premiums of RMB 150-180/mt against SHFE 1401 zinc contract prices. #1 zinc prices were between RMB 14,850-14,860/mt. large amounts of imported zinc arrived at ports ahead of the holiday, with Belgium and Indian #0 zinc prices between RMB 14,830-14,850/mt. Dragged down by LME zinc prices, SHFE 1312 zinc contract prices opened low, but investors lacked interest in purchasing. Cargo holders were actively moving goods with firm prices, causing spot premiums to expand significantly, with RMB 200/mt for Shuangyan branded zinc against SHFE 1401 zinc contract prices. But due to the lack of downstream buyers, transactions were quiet, with mainstream premiums of RMB 170-180/mt for Shuangyan branded #0 zinc. With sluggish downstream orders and the typhoon, overall transactions were muted.
With regard to zinc price trends this week, 50% market players surveyed by SMM are optimistic, believing LME zinc prices will rise to USD 1,900/mt, and SHFE 1401 zinc contract prices will break through RMB 14,800/mt. They believe an agreement will be eventually reached on the US debt issue. Few investors sold off goods with the exception of the day on which US government was closed. The US debt crisis may result in a delay in the wind-down of QE3, weighing down the US dollar index and positively affecting zinc prices. News from China and Europe was upbeat. European Central Bank decided to maintain its benchmark rate unchanged at 0.5%, and Draghi reemphasized his easy-money stance. In Italy, Berlusconi withdrew his support for Leta, and the Liberal People's Party pledged they will continue their support for existing government. During Chinese National Day holiday, China’s official PMI in September hit a 17-month high, while non-manufacturing PMI was 55.4%, a 6-month high. The average price of new housing in Chinese 100 cities was RMB 10,554/㎡, up 1.07% MoM, and this is the 16th straight month in which the average price rose on the month. Improving PMI and strong real estate market will enhance optimism toward demand in China.
10% are bearish since ADP data showed last week only 166,000 jobs were added, falling short of expectations, and US non-farm employment data will be released this Friday, which is also pessimistic and will negatively affect zinc prices. LME zinc prices are expected to fall to USD 1,855/mt, and SHFE 1401 zinc contract prices will find support at RMB 14,610/mt. Trading in southeast China was muted due to the typhoon. East Asian Games opened October 5 in Tianjin, and gaolvanizers and zinc oxide enterprises near Tianjin were affected, which affected their interest in building raw materials. Cargo holders were cautious on the first trading days following the Chinese National Day holiday, with spot premiums against SHFE 1401 zinc contract prices expanding to RMB 150-180/mt, but are expected to narrow to RMB 150/mt due to the lack of downstream buyers.
The remaining 40% are neutral, believing until the US debt issue was resolved, LME zinc prices will move between USD 1,860-1,890/mt, and SHFE 1401 zinc contract prices will hover between RMB 14,700-14,800/mt.