SMM Zinc Market Daily Review (2014-3-24)

SHANGHAI, Mar. 25 (SMM) – SHFE 1406 zinc contract prices opened low at RMB 14,695/mt on Tuesday evening, but then inched up to RMB 14,770/mt as LME zinc prices rebounded, and finally closing at RMB 14,760/mt, up RMB 20/mt or 0.14%. Trading volumes increased by 768 lots to 11,936 lots, and total positions increased by 1,228 lots to 73,860 lots.

SHFE 1406 zinc contract prices opened at RMB 14,765/mt on Wednesday, then leveled out between RMB 14,740-14,780/mt since LME zinc prices hovered within a narrow band, and closing the day at RMB 14,755/mt, up RMB 15/mt or 0.1%. Trading volumes decreased by 9,266 lots, to 21,378 lots, and total positions increased by 2,852 lots, to 75,458 lots.

#0 zinc prices were between RMB 14,620-14,650/mt, with spot discounts between RMB 120-150/mt against SHFE 1406 zinc contract prices. #1 zinc prices were between RMB 14,600-14,610/mt. SHFE 1406 zinc contract prices opened at RMB 14,765/mt on Wednesday, and leveled out. Traders lacked interest in operation as zinc prices fluctuated in a narrow band, and smelters continued to move goods modestly, with some forced to undertake maintenance in advance. Downstream enterprises purchased goods at lower prices, who had replenished goods on Tuesday, when combined with market pessimism, downstream buying interest was low, leaving trade muted. Shuangyan branded #0 zinc prices were between RMB 14,640-14,650/mt, with RMB 14,620-14,630/mt for Qinxin, Jiulong and Feilong branded #0 zinc.

Last week, LME zinc prices continued to fall, down as much as 1.66%. With regard to zinc price trends this week, SMM surveyed 30 market participants and found that 40% believe LME zinc prices will fall further, testing support from USD 1,900/mt, and SHFE 1406 zinc contract prices will test support from RMB 14,600/mt, with spot prices dropping to RMB 14,550/mt. They base their opinion on negative macroeconomic news. HSBC's March PMI fell to an eight-month low to 48.1, falling short of the 48.5 in February and the 48.7 expected. Deflation and outdated capacity elimination negatively affected economic growth. Besides, March PMIs from European countries and the US are also pessimistic, which will continue to weigh down LME zinc prices. RMB depreciation has reached nearly 3%, which will cause massive selloffs of finance-driven copper imports and push down LME copper prices. LME zinc prices will hence be dragged down.

50% believe LME zinc prices will level out between USD 1,925-1,965/mt and SHFE 1406 zinc contract prices will hover between RMB 14,650-14,850/mt, with spot prices between RMB 14,600-14,700/mt. Smelters have been holding back goods as zinc prices hovered at low levels, while imported zinc arrivals were low due to falling SHFE/LME zinc price ratio, which will help stabilize zinc prices. Domestic zinc prices have been resistant to declines recently.

The remaining 10% are optimistic, seeing LME zinc prices rising to test USD 1,980/mt, and SHFE 1406 zinc contract prices will test support from RMB 14,900/mt. Spot zinc prices are expected to climb to RMB 14,750/mt. As a large number of shorts leave the market, zinc prices will rebound. Inventories in Shanghai, Guangdong and Tianjin have been falling for three weeks on end, reflecting downstream enterprises ramped up production. When combined with the onset of high demand season for zinc, zinc prices should rebound.