SHANGHAI, Nov. 5 (SMM) - SHFE 1401 zinc contract prices opened low at RMB 14,990/mt, then hovered around RMB 15,000/mt. At noon, SHFE zinc prices dipped to RMB 14,970/mt due to tumbling LME zinc prices, but rallied to RMB 15,000/mt in the afternoon as a large number of longs entered the market, closing at RMB 15,010/mt, down RMB 65/mt. Trading volumes increased by 3,316 lots, to 30,458 lots, and total positions decreased by 3,324 lots, to 112,000 lots.
#0 zinc prices were between RMB 15,050-15,100/mt before 11 AM, with spot premiums between RMB 50-100/mt against SHFE 1401 zinc contract prices. As SHFE zinc prices dropped below RMB 15,000/mt, #0 zinc prices fell to RMB 15,040-15,090/mt, with #1 zinc prices between RMB 15,020-15,030/mt. Belgium #0 zinc prices were between RMB 15,020-15,040/mt, with KZ and SMC #0 zinc prices between RMB 15,050-15,060/mt. LME zinc prices dropped after opening, while China's prices were firm. Cargo holders were actively moving goods, but downstream buying interest was slow due to cash flow tightness and unstable zinc prices. Shuangyan branded #0 zinc prices between RMB 15,090-15,100/mt, and Qinxin and Yuguang branded #0 zinc prices were between RMB 15,080-15,090/mt, with Baohui branded zinc prices around RMB 15,050/mt and Tongguan branded zinc price around RMB 15,040/mt.
SMM surveyed 30 market players and found that 60% believe zinc prices will level out this week. Both official and HSBC's PMI for China in October were better than expectations, and China's manufacturing index was also positive. The market is awaiting the result of the Third Plenary Session of the Eighteenth CCP Central Committee, and US 3Q GDP will also be released this week, while whether the Fed will taper off QE3 at its December policy meeting will depend on the release of October economic data. With mixed macroeconomic news and sluggish demand, LME zinc prices are expected to hover between USD 1,930-1,960/mt, and SHFE 1401 zinc contract prices will move between RMB 14,900-15,100/mt.
In the spot market, smelters will hold prices firm, and high premiums will remain, with downstream buyers purchasing on an as-needed basis. Orders at zinc oxide producers barely improved, with spot premiums against SHFE 1401 zinc contract prices expected to be RMB 50-100/mt.
13% are optimistic, believing concerns that the Fed will scale back QE3 will ease after the Fed November policy meeting ends. Besides, manufacturing data from China and the US continued to improve, and China's export situations also improved. As such, LME zinc prices will rise to USD 1,950-1,980/mt. As the Third Plenary Session of the Eighteenth CCP Central Committee nears, stocks of reform-related industries are expected to rise, which will push up SHFE zinc prices to RMB 15,000-15,200/mt. As cash flow problems eased, downstream buying interest for spot zinc will increase, with the average #0 zinc price expected to rise to RMB 15,150-15,200/mt.
The remaining 27% are pessimistic. European unemployment rate hit a new high of 12.2% recently, and its extremely low inflation rate triggered market concerns over deflation and expectations that European Central Bank may lower interest rates; the US dollar index rebounded and is expected to rise further, weighing down LME zinc prices. China's enterprises will likely deplete raw material inventories given cash tightness at the year's end, which is unfavorable for zinc prices. LME zinc prices will fall to USD 1,920-1,940/mt. SHFE zinc prices are expected to move between RMB 14,900-15,050/mt. In the spot market, smelters will slow sales, and traders will hold prices firm, while downstream buying interest will unlikely improve. Given overcapacity and the low likelihood that China will build zinc ingot reserves this year, spot zinc prices will not rise, falling to RMB 15,000/mt along with SHFE zinc prices.