SMM Zinc Market Daily Review (2014-4-8)

SHANGHAI, Apr. 9 (SMM) – SHFE 1406 zinc contract opened higher at RMB 14,880/mt on Tuesday due to firm LME zinc prices last Friday. The most active contract vacillated in a tight RMB 14,875-14,895/mt range for most of the day, but inched up at the tail of the session on rising Chinese stock markets and LME zinc prices, closing the day up RMB 60/mt or 0.4% at RMB 14,905/mt. Trading volumes added 2,490 lots to 15,948 lots, but positions dropped 1,908 lots to 67,718 lots. SHFE zinc for June delivery looks set to challenge resistance at RMB 15,000/mt in the short term.

In Shanghai physical zinc market, #0 zinc traded at RMB 14,750-14,780/mt on Tuesday, while #1 zinc traded around RMB 14,720/mt. Wait-and-see sentiment prevailed in the market on the first day after the three-day holiday. With SHFE 1406 zinc contract being range-bound, traders showed little buying interest. Smelters were little interested in selling, so goods of certain brands remained in shortage. The price spread among different brands narrowed significantly. Downstream producers were cautious about entering the market. Prices were RMB 14,770/mt for Shuangyan brand #0 zinc, RMB 14,760/mt for Jiulong and Feilong brand #0 zinc, and RMB 14,730-14,740/mt for imported Spanish #0 zinc.

LME zinc prices rose 1.52% last week. Will LME zinc prices maintain upward momentum this week?

SMM surveyed 30 market players and found that 27% believe LME zinc prices will lack ability to rise further, moving between USD 1,985-2,020/mt, and SHFE 1406 zinc contract prices will hover between RMB 14,800-14,950/mt, with spot discounts around RMB 120/mt. The market will lack positive news this week. The PBOC implemented RMB 63 billion in repurchasing, down nearly 30% from two Thursdays ago, which will help relieve market sentiment.

60% are bullish, believing LME zinc prices will rise to test USD 2,040/mt, and SHFE 1406 zinc contract prices will test RMB 15,050/mt. A weakening US dollar index will give support to zinc prices. The State Council held the executive meeting last week and release a series of policies to stabilize economic growth, including preferential tax policies for small and mini enterprises, low-income housing construction and railway construction acceleration, which will give confidence to the market and positively affect zinc prices. Domestic stocks also rose recently. SMM sources report total inventories in Shanghai, Guangdong and Tianjin slid for five consecutive weeks, showing downstream demand improved in March, showing downstream demand is improving. Especially orders from bullet train and galvanized steel tower industry were brisk, when combined with tight spot supply, spot prices are expected to rise to RMB 14,900/mt.

The remaining 13% are pessimistic, believing LME zinc prices will fall to test USD 1,970/mt, and SHFE 1406 zinc contract prices will test RMB 14,700/mt, with spot prices down to RMB 14,650/mt. they think LME copper prices will not continue rebounding, which will drag down LME zinc prices. LME zinc prices have risen nearly 2.7%, when combined with the lack of positive news, a large number of longs are expected to leave the market after profit-taking.