SHANGHAI, Mar. 18 (SMM) – SHFE 1405 zinc contract prices opened high at RMB 14,845/mt last Friday evening, then dropped to RMB 14,730-14,770/mt, and finally closing at RMB 14,770/mt, down RMB 15/mt or 0.1%. Trading volumes decreased by 2,162 lots to 11,714 lots, and total positions decreased by 1,360 lots to 82,078 lots. SHFE 1405 zinc contract prices opened at RMB 14,770/mt on Monday, then inched down, dipping to a low of RMB 14,650/mt, and closing at RMB 14,655/mt, down RMB 130/mt or 0.88%. Trading volumes decreased by 36 lots, to 20,114 lots, and total positions decreased by 4,816 lots, to 78,622 lots.
#0 zinc prices were between RMB 14,670-14,720/mt, with spot discounts between RMB 80-110/mt against SHFE 1405 zinc contract prices. #1 zinc prices were between RMB 14,660-14,670/mt. SHFE 1405 zinc contract prices opened at RMB 14,790/mt on Friday, then inched down, pushing down spot prices, with spot discounts narrowing further. Traders were moving goods actively, while smelters reduced goods supply, with downstream buyers remaining cautious. Shuangyan branded #0 zinc prices were between RMB 14,700-14,720/mt, with RMB 14,670-14,690/mt for Qinxin, Yuguang and Baohui branded #0 zinc.
LME zinc prices plunged with LME copper prices last week, down as much as 3%. Will LME zinc prices stop falling this week? SMM surveyed 30 market players and found that 50% market players believe LME zinc prices will continue to fall this week, testing support from USD 1930/mt, and SHFE 1405 zinc contract prices will test support from RMB 14,400/mt, with spot prices down to RMB 14,400/mt. Disappointing economic data, including value-added at China’s scale-efficient industries and fixed assets investment fell short of expectations. When combined with sluggish import and export data, the market will continue to absorb concerns over China’s base metals demand. Ukraine crisis is expected to deteriorate, decreasing risk appetite and negatively affecting LME zinc prices. Besides, LME copper prices have yet to level out, which will weigh on LME zinc prices. LME zinc inventories continued to grow, with backwardation against LME three-month zinc contract prices falling from USD 35/mt to contango of USD 4/mt, weighing on zinc prices.
33% take a neutral attitude, believing LME zinc prices will level out, moving between USD 1,950-2,000/mt, and SHFE 1405 zinc contract prices will hover between RMB 14,550-14,850/mt, with spot prices between RMB 14,550-14,750/mt. Zinc prices have dropped to a 1/2 year low, and as zinc prices fall, smelters begin to hold back goods. When combined with tight imported zinc supply, spot supply will contract. Some bargain hunters will enter the market, helping zinc prices to level out. The US Federal Reserve (Fed) will hold its policy meeting this Thursday, and whether or not the Fed will continue to scale back QE3 is now uncertain given the higher US February unemployment rate, which will add to market reticence.
The remaining 17% are bullish, believing LME zinc prices will rebound to USD 2,020/mt, and SHFE 1405 zinc contract prices will test RMB 15,000/mt. As shorts are expected to leave the market after profit-taking, LME zinc prices look set to rebound. This week, the US will release its February inflation rate, housing starts, and construction permits data, which are expected to be positive, helping boost LME zinc prices. Operations at the real estate and power sector, as well as and highway construction will restart as the weather improves, which will stimulate downstream demand for zinc. The continuously falling inventories in Shanghai, Guangdong and Tianjin is a strong sign of improving demand. China will input RMB 1 trillion in low-income housing construction during 2014-2020, which will also help ease concerns over China’s base metal demand.