SHANGHAI, Oct. 29 (SMM) - SHFE 1401 zinc contract prices opened higher at RMB 15,030/mt as LME zinc prices overnight closed the day with gains, and then leveled out. But due to sluggish spot zinc market, SHFE zinc prices dropped later the day to RMB 15,035-15,055/mt. But since LME zinc prices jumped, SHFE zinc prices stabilized and closed at RMB 15070/mt, up RMB 120/mt. Trading volumes decreased by 9,242 lots, to 48,040 lots, and total positions increased by 2,900 lots, to 132,000 lots. The market remains cautious awaiting result from the Fed's policy meeting.
#0 zinc prices were between RMB 15,090-15,150/mt, with spot premiums between RMB 40-80/mt against SHFE 1401 zinc contract prices. #1 zinc prices were around RMB 15,040-15,060/mt. Imported SMC and KZ #0 zinc prices were around RMB 15,100/mt, with Peru zinc price around RMB 15,070/mt. SHFE 1401 zinc contract prices soared before falling back, but up from last Friday's level. Downstream buying interest was low due to month-end cash flow problems, while cargo holders were actively moving goods, but overall trading was muted.
Investors focus their attention on the Fed's seventh policy meeting held October 29-30. SMM undertook a survey and found that 46% market players believe US major economic data are mixed, and the Fed's policy meeting will become a focus of markets. Although European currencies continued to rebound, and the US dollar index was pushed down, base metals will gain little support. LME zinc prices will hover around RMB 15,000/mt. As LME zinc prices resist both increases and declines and since enterprises are busy with month-end settlement, #0 zinc prices will be RMB 40-80/mt higher than SHFE 1401 zinc contract prices.
27% market players are pessimistic. Concerns that the Fed will scale back QE3 in October permeate in the market, causing risk aversion to grow. LME zinc prices are expected to fall back to USD 1,930/mt. As it was reported that China will resume Initial Public Offerings and since 3Q earnings report of listed companies fell short of expectations and due to tightening liquidity, SHFE 1401 zinc contract prices should move between RMB 14,860-15,000/mt, with spot premiums between RMB 60-100/mt.
The remaining 27% think LME zinc prices will edge up to USD 1,945 -1,980/mt. profit at scale-efficiency industry enterprises during January-September was up 13.5% YoY, with the growth up 0.7 percentage point from January-August. That shows China's industry production is recovering. The market will be optimistic that the Third Plenary Session of the 18th CPC Central Committee will result in reform policies. Mixed economic news from the US undermined market expectations that the Fed will taper off QE3 during the remainder of the year. In the spot market, Zhuzhou Smelter Group and Huludao Zinc Industry Company released their 3Q earnings report recently, which improved from 2Q. Besides, SMM sources report operating rates at zinc oxide producers, galvanizers and zinc alloy producers climbed with China's recovering economy. SHFE 1401 zinc contract prices should move between RMB 15,000-15,200/mt, with spot premiums between RMB 0-20/mt.