SMM Zinc Weekly Price Review and Forecast (21-25 Oct. 2013)

SHANGHAI, Oct. 21 (SMM) –

Review  
LME zinc prices hovered around USD 1,930/mt last week as US debt ceiling negotiations took center stage. LME zinc prices edged up due to market optimism three weeks ago, but slow progress of the US debt limit negotiations weighed down LME zinc prices early last week. Nevertheless, the US Congress eventually reached an agreement, allowing LME zinc prices to hover between USD 1,925-1,930/mt, and finding solid support from the 5 and 10-day moving averages. 

SHFE 1401 zinc contract prices moved between RMB 14,890-15,000/mt, meeting resistance at RMB 15,000/mt, and with a cautious sentiment prevailing in the market. Total positions were down by 15,904 lots, while SHFE zinc warrants decreased by 1,338 mt, to 87,759 mt.

Spot premiums for #0 zinc against SHFE 1401 zinc contract prices remained between RMB 100-170/mt, unchanged from two weekends ago. Smelters without strong inventory pressures did not sell goods in large amounts, and other cargo holders were holding prices firm. Downstream buying interest was low at prices above RMB 15,000/mt, leaving transactions muted. #1 zinc prices were impacted by imported zinc prices, with the price spread between SMM #0 and #1 zinc expanding to RMB 100/mt.

Last week, the price spread between Guangdong and Shanghai markets expanded to RMB 130-180/mt. Galvanizers and zinc oxide producers in and around Tianjin did not restart production due to ongoing environmental protection measures during the East Asia Games, leaving zinc demand soft and causing spot premiums for Tianjin against Shanghai to change to  discounts of RMB 40-80/mt.

Forecast
Now that the US Congress has reached an agreement on the debt limit and budget, the US government will reopen. US President Obama stated last Thursday that the financial impasse dragged down US economy over the past weeks, pushing up borrowing costs and the US fiscal deficit, so some market players anticipate that QE3 will remain in place until later this year or early next year. US Labor Department announced that US non-farm employment data in September will be released this Tuesday, adding to market uncertainties over QE3 implementation. The US government will release September existing home sales, September new home sales, Markit's flash manufacturing PMI for October, and University of Michigan's CCI for October this week, which will guide market movements. Early last week, China's September CPI rose 3.1% YoY, but its PPI in September fell 1.3% YoY. China's 3Q GDP growth released last week was 7.8% YoY, down slightly from the 7.5% 2Q. HSBC's flash October PMI for China will be announced this week, and since markets are optimistic, zinc prices will find solid support. However, markets remain cautious toward QE3 uncertainties, so  LME zinc prices should move between USD 1,890-1,940/mt, meeting strong resistance at USD 1,940/mt. SHFE 1401 zinc contract prices will move between RMB 14,800-15,000/mt, with spot premiums between RMB 100-160/mt.