SMM Zinc Market Daily Review (2014-3-10)

SHANGHAI, Mar. 11 (SMM) – SHFE 1405 zinc contract prices opened lower at RMB 14,990/mt last Friday evening, then dipping to an intraday low of RMB 14,810/mt, and finally closing at RMB 14,935/mt, down RMB 240/mt or 1.58%. Trading volumes increased by 92,804 lots to 106,776 lots, and total positions decreased by 7,650 lots to 105,694 lots.

SHFE 1405 zinc contract prices opened low at RMB 14,820/mt on Monday, then edged down due to China's worse-than-expected export data and Chaori Solar Company's bond default, dipping to RMB 14,700/mt, a record low in 1/2 year. SHFE copper prices dropped by the daily limit after opening, distressing market confidence, then rallied in the morning session. But as LME zinc prices edged down, SHFE 1405 zinc contract prices fell further, and closing at RMB 14,775/mt, down RMB 400/mt or 2.64%. Trading volumes increased by 62,188 lots, to 93,236 lots, and total positions decreased by 2,938 lots, to 110,406 lots.

#0 zinc prices were between RMB 14,730-14,770/mt, with spot discounts between RMB 80-120/mt against SHFE 1405 zinc contract prices. #1 zinc prices were between RMB 14,710-14,720/mt. SHFE 1405 zinc contract prices opened low at RMB 14,820/mt on Monday, rising after dipping to RMB 14,700/mt, staying around RMB 14,855/mt, with spot discounts narrowing to RMB 100/mt. traders were moving goods actively, while smelters held back goods due to falling zinc prices, with downstream buyers remaining cautious. Shuangyan branded #0 zinc prices were between RMB 14,760-14,770/mt, with RMB 14,760/mt for Yuguang branded #0 zinc, and RMB 14,740-14,750/mt for Qinxin and Feilong branded #0 zinc.

LME zinc prices soared before falling back last week, rolling back all early gains. Will LME zinc prices stop falling this week?

SMM surveyed 30 market players and found that 60% are pessimistic, believing LME zinc prices will test support from USD 2,000/mt, and SHFE 1405 zinc contract prices will test support from RMB 14,600/mt, with spot prices sliding to RMB 14,600/mt. Ukraine crisis continues to affect the market. US February non-farm employment released last Friday came in better than expected and January, causing the US dollar index to rebound, which will weigh down LME zinc prices. Chaori Solar Company's bond defaulted, and triggered market concerns over Chinese economy, dragging down LME zinc prices further. The default also caused concerns over finance-driven copper transactions, with trading of SHFE copper contracts muted on Monday. Besides, China's exports growth in February fell to a record low in four years, which triggered concerns over China's demand. China will release February retail sales, fixed assets investment and value-added at scale-efficient industries, which is not optimistic due to downbeat HSBC's and Chinese government's official February PMI and the Chinese New Year holiday. LME zinc inventories grew on Monday, and backwardation against LME three-month zinc contract prices fell from USD 35/mt, to USD 15.3/mt, with long momentum weakening. Firm TC prompts enterprises to actively produce, while downstream demand remained soft due to ongoing environmental protection inspections and the lack of orders.

27% are neutral, believing LME zinc prices which have been falling for several consecutive days will lack any room to fall further, and are expected to move between RMB 2,015-2,060/mt, and SHFE 1405 zinc contract prices will hover between RMB 14,700-14,900/mt. despite negative macroeconomic news, zinc prices have fallen to a 1/2 year low, which will allow smelters to hold back goods. Besides, some downstream buyers will enter the market due to falling zinc prices. But ongoing NPC and CPPCC will keep investors cautious, so zinc prices will remain stagnant.

The remaining 13% see prices rising, believing LME zinc prices will test USD 2,080/mt, and SHFE 1405 zinc contract prices will test RMB 15,000/mt. It is likely that a large number of shorts will leave the market after profit-taking, so LME zinc prices will have little room to fall further. As a large number of bargain hunters enter the market, zinc prices will rise to RMB 14,900/mt.