SHANGHAI, Oct. 14 (SMM) –
LME zinc prices were mixed during the Chinese National Day holiday. The current US government shutdown resulting from a fiscal budget impasse pushed down LME zinc prices below five moving averages on the first day of trading following the Chinese National Day holiday, with prices falling from USD 1,935/mt by 2.27%. Due to mixed economic data from China and the US, LME zinc prices leveled out later in the week. In the first half of last week, LME zinc prices hovered between USD 1,874-1,888/mt due uncertainty over the US debt ceiling issue, but after US President Obama nominated Janet Yellen as the Fed Chairman and a tentative compromise to the budget impasse, market sentiment improved, driving up LME zinc prices.
SHFE 1401 zinc contract prices became the most actively traded contracts early last week, with prices edging up, but meeting resistance at the 5 and 60-day moving averages and moving between RMB 14,740-14,800/mt. SHFE warrants decreased by 630 mt to 87,759 mt.
Spot premiums for #0 zinc against SHFE 1401 zinc contract prices remained between RMB 140-180/mt, up significantly from the RMB 100-130/mt prior to the holiday. Traded prices rose from RMB 14,900/mt early in the week, to RMB 14,950/mt, and even as high as RMB 15,050-15,080/mt on Friday. Due to unfavorable macroeconomic news and transportation disruptions from a typhoon hitting southeastern China, overall transactions fell short of expectations following the holiday, but with smelters still moving goods reasonably and traders actively selling goods.
Enterprises that were affected by credit crisis in Guangdong province did not restart operations after the holiday, so trading was quiet. Discounts for #0 zinc were RMB 100-120/mt against Shanghai prices. The Asian Games opened in Tianjin on October 5th, so strict environmental inspections forced some zinc-related enterprises to suspend production, while traffic control measures also hampered transportation of zinc ingot. Hongye was also holding back goods and Honglu and Tianlu both cut output. The availability of Shuangyan branded zinc was also low, but supply and demand were both weak. Regular # 0 zinc prices were above RMB 15,000/mt, with spot premiums against Shanghai narrowing from RMB 150/mt early in the week, to RMB 50/mt. #0 zinc output at Huludao Zinc Industry Company's old production lines was low, so traded prices were up RMB 170/mt, to RMB 16,070/mt, and broke through RMB 16,000/mt for the first time since mid-April. The price spread between #0 zinc brands in Tianjin continued to expand.
The Dow Jones Industrial Average, the Standard & Poor's 500 Index, and the Nasdaq Composite Index all surged after a US debt ceiling agreement seemed to be at hand. Markets expect the US Federal Reserve will unlikely scale back QE3 during October after the number of US initial jobless claims jumped. The release of major economic data was postponed due to US government shutdown, but since Janet Yellen was nominated as the next Fed Chairman, base metals prices are expected to rise. China will announce its September CPI, PPI and GDP this week, which are expected to be positive. The Third Plenary Session of the Eighteenth Central Committee of the CPC to be held in early November, which is expected to produce new economic reforms plan, and given recent improvements in the global macroeconomic environment, LME zinc prices are expected to rebound this week to USD 1,885-1,935/mt.
SHFE zinc prices will rise this week due to stronger LME zinc prices and an upbeat Shanghai Composite Index. Since spot zinc prices should remain firm as the delivery date nears and since inventories continue to fall, SHFE 1401 zinc contract prices will move between RMB 14,800-15,050/mt.
Downstream enterprises in Ningbo which were affected by flooding from the typhoon are expected to restart production this week, which will cause spot demand to improve. Cargo holders will be optimistic due to rising SHFE zinc prices, so overall transactions should improve. However, spot zinc prices will not rise significantly due to the delivery date, so spot premiums against SHFE 1401 zinc contract prices should fall to RMB 100/mt.