SMM Zinc Market Daily Review (2014-3-31)

SHANGHAI, Apr. 1 (SMM) – SHFE 1406 zinc contract prices opened high at RMB 14,880/mt last Friday evening, and then touched RMB 14,895/mt. As LME zinc prices lacked ability to rise further, a large number of longs left the market after profit-taking. SHFE 1406 zinc contract prices closed at RMB 14,865/mt, up RMB 25/mt or 0.17%. Trading volumes increased by 1,274 lots to 7,390 lots, and total positions decreased by 124 lots to 73,794 lots. SHFE 1406 zinc contract prices opened low at RMB 14,860/mt on Monday, inching down to RMB 14,820/mt at one point due to strong short momentum, dipping to RMB 14,790/mt, and closing the day at RMB 14,800/mt, down RMB 40/mt or 0.27%. Trading volumes increased by 5,346 lots, to 30,972 lots, and total positions decreased by 342 lots, to 73,576 lots.

#0 zinc prices were between RMB 14,680-14,710/mt, with spot discounts between RMB 120-140/mt against SHFE 1406 zinc contract prices. #1 zinc prices were between RMB 14,640-14,660/mt. SHFE 1406 zinc contract prices opened at RMB 14,860/mt on Monday, and then inched down to last Friday's levels. Spot zinc prices were firm, with discounts narrowing RMB 20-30/mt from last Friday. Traders lacked interest in transactions due to quarter and month's end cash flow problems, and smelters moved goods modestly, with some brands still in short supply. Downstream enterprises purchased on an as-needed basis, with transactions muted. Shuangyan branded #0 zinc prices were between RMB 14,700-14,710/mt, with RMB 14,690/mt for Qinxin, Jiulong and Feilong branded #0 zinc.

LME zinc prices inched up by 1.2% last week. Will LME zinc prices continue to rebound this week?

SMM surveyed 30 market players and found that 53% take a neutral attitude, believing LME zinc prices will level out between USD 1,960-2,000/mt, and SHFE 1406 zinc contract prices will hover between RMB 14,700-14,900/mt, with spot discounts between RMB 100-150/mt. The European Central Bank (ECB) will announce its decision on interest rates this week, with many ECB officials saying they would consider negative interest rates and assets purchases to prevent deflation. The ongoing Ukraine crisis is also the focus of markets. Besides, spot supply is limited, with some brands in short supply. Given stable downstream demand, zinc prices will not fall further, resisting both increases and declines.

30% are optimistic, thinking LME zinc prices will rise to test USD 2,020/mt, and SHFE 1406 zinc contract prices will test RMB 15,000/mt. a series of sluggish economic data from China triggered market expectations that China will announce new stimulus policies to prevent economy sliding, which will boost market confidence and give solid support to zinc prices. SMM statistics shows total inventories in Shanghai, Guangdong and Tianjin fell for four straight weeks. As the Canton Fair will be held April 15, downstream enterprises are producing actively, which will push up zinc prices to RMB 14,850/mt.

The remaining 17% believe LME zinc prices will fall to test support from USD 1,940/mt, and SHFE 1406 zinc contract prices will fall to RMB 14,600/mt, with spot zinc prices down to RMB 14,600/mt. Major economic data, including March PMIs from China, the US, and Europe will be released this week. Investors are pessimistic due to downbeat initial data, which will help weigh down LME zinc prices. However, US non-farm employment data is expected to be positive since the weather is improving, which may boost market confidence and raise expectations that the US Federal Reserve will raise interest rates sooner than later. A rising US dollar index will weigh on zinc prices as well. Contango against LME three-month zinc contract prices expanded to RMB 11/mt, with LME zinc prices meeting strong resistance at USD 2,000/mt. Should LME copper prices fall, LME zinc prices will drop to a near-term low.