SMM Zinc Market Daily Review (2014-4-14)

SHANGHAI, Apr. 15 (SMM) – SHFE 1406 zinc contract prices opened at RMB 14,970/mt last Friday evening, falling back after touching RMB 15,000/mt, dragged down by LME zinc prices, dipping to RMB 14,915/mt, and finally closing at RMB 14,945/mt, down RMB 25/mt or 0.17%. SHFE 1406 zinc contract prices opened at RMB 14,945/mt on Monday, then fluctuated in a narrow range, hovering between RMB 14,935-14,955/mt, and edging up with LME zinc prices, once touching 14,985/mt, and closing at RMB 14,980/mt, up RMB 10/mt or 0.07%. Trading volumes decreased by 2,452 lots, to 10,528 lots, and total positions decreased by 1,660 lots, to 59,442 lots.

#0 zinc prices were between RMB 14,880-14,900/mt, with spot discounts between RMB 40-70/mt against SHFE 1406 zinc contract prices. #1 zinc prices were around RMB 14,860/mt. SHFE 1406 zinc contract prices opened at RMB 14,950/mt on Monday, and then leveled out. Spot prices remained firm due to tight supply as some smelters conducted maintenance and since traders were holding back goods. Spot discounts narrowed by RMB 30/mt. Traders were actively moving goods, while downstream enterprises purchased on an as-needed basis, causing transactions to improve. Shuangyan branded #0 zinc prices were around RMB 14,900/mt, with RMB 14,880-14,890/mt for Yuguang, Qinxin and Baohui branded #0 zinc.

LME zinc prices rose by 1.1% last week. Will LME zinc prices extend gains this week?

SMM undertook a survey of 30 market players and found that 53% are neutral, believing LME zinc prices will level out between USD 2,020-2,060/mt, and SHFE 1406 zinc contract prices will move between RMB 14,900-15,050/mt, with spot discounts around RMB 50/mt. the market will see no significant news this week. The US Federal Reserve (Fed) Chairwoman Janet Yellen will speak on Tuesday and Thursday, with the market uncertain when the Fed will raise interest rates. Growing Ukraine crisis will fuel market reticence. SHFE 1406 zinc contract prices will surge to the 60-day moving average but then fall back.

30% market players believe LME zinc prices will rise to test USD 2,080/mt, and SHFE 1406 zinc contract prices will test RMB 15,150/mt. US economic data have been positive recently. US March retail sales rose 0.9%, the largest gain over the past year, compared to the 0.3% in February. This shows US consumption is recovering, which will positively affect zinc prices. Some smelters are conducting maintenance, while traders were holding back goods, causing spot supply to tighten and keeping spot prices firm, which caused spot discounts to narrow recently. Meanwhile, SMM statistics shows inventories in Shanghai, Guangdong and Tianjin fell for a sixth straight week. Downstream demand improved since March, with operating rates die-cast zinc alloy producers, galvanizers and zinc oxide enterprises growing steadily, pushing up spot zinc prices. Spot prices look set to rise to RMB 15,050/mt this week.

The remaining 17% are pessimistic, thinking LME zinc prices will drop to test USD 2,000/mt, and SHFE 1406 zinc contract prices will test support from RMB 14,800/mt. Some goods will be released to the market after delivery, pushing down spot prices below RMB 14,800/mt. They base their opinion on the downbeat economic data from China. China's March CPI was 2.4%, while PPI was down 2.3% YoY, dropping for the 25th straight month, with deflationary pressure growing. China's Q1 GDP data, March retail sales, fixed assets investments in cities and towns and value-added at scale efficient industries will be released this week, which are pessimistic. The State Council pushed a series of policies to stabilize economic growth, but Premier Li Keqiang expressed at the Boao Forum that China will not use strong stimulus policies, which distressed market confidence.