SHANGHAI, Jun. 4 (SMM) – The SHFE market remained closed on Monday evening due to the Chinese Dragon Boat Festival. SHFE 1408 zinc contract prices opened at RMB 15,200/mt on Tuesday, then fell to RMB 15,190/mt. in the afternoon, LME zinc prices edged up, but SHFE 1408 zinc contract prices lacked impetus to rise, and closing at RMB 15,185/mt, up RMB 50/mt or 0.33%. Trading volumes decreased by 496 lots, to 12,184 lots, and total positions increased by 2,498 lots, to 71,208 lots.
#0 zinc prices were between RMB 15,160-15,190/mt, with spot prices ranging from RMB 20/mt below to RMB 10/mt against SHFE 1408 zinc contract prices. #1 zinc prices were between RMB 15,120-15,130/mt. SHFE zinc prices dropped from high levels, weighing down spot zinc prices. With cash flow tightness, market players are actively moving goods, and downstream enterprises control inventories, leaving transactions muted. Shuangyan branded #0 zinc were between RMB 15,180-15,190/mt, with RMB 15,160-15,170/mt for Yuguang, Qinxin and Jiulong branded #0 zinc. Tianlu and AZ branded #0 zinc prices were RMB 15,140-15,150/mt. SHFE 1408 zinc contract prices consolidated in the afternoon, with #0 zinc prices between RMB 15,160-15,190/mt.
LME zinc prices leveled out last week. With regard to zinc price trends this week, SMM undertook a survey of 30 market players and found that 44% believe LME zinc prices will consolidate this week. China's official PMI in May continued to rebound for three consecutive months, boosting base metals prices. But euro zone PMI dropped to a six-month low, with Germany's May PMI falling for a seven-month low. The European Central Bank's (ECB) interest rates decision, as well as US May non-farm employment figures will be the focus of markets. The euro zone inflation rate for April was 0.7%, and was well below the target 2%. This news caused market expectations to grow that the ECB would lower interest rates, but will negatively affect the euro, push up the US dollar index, and weigh down base metals prices. LME zinc prices are expected to move between USD 2,050-2,090/mt, and SHFE 1408 zinc contract prices will hover between RMB 15,090-15,250/mt, with spot prices expected to be RMB 15,090-15,210/mt.
43% are pessimistic, thinking LME zinc prices will fall to USD 2,030/mt, and SHFE 1408 zinc contract prices will drop to RMB 15,050/mt. Traders will move goods to generate cash due to growing cash flow tightness, and smelters will also deplete stocks to complete mid-year target, both causing supply to increase. But orders will weaken as the summer set in, with spot zinc prices expected to fall to RMB 15,000/mt.
13% are bullish toward zinc prices. The State Council announced last Friday it will lower deposit reserve ratio for rural, mini and small enterprises as well as financing institutions that meet requirements. A series of slightly stimulus policies will curb economy from sliding. This was interpreted by improving official and HSBC's PMI for China. Besides, LME and SHFE zinc inventories continued to fall. With an exodus of shorts on the LME and spot discounts turning to premiums of USD 5/mt, LME zinc prices will find support, soaring above USD 2,100/mt, and SHFE 1408 zinc contract prices will rise to RMB 15,300/mt, with spot prices up to RMB 15,250/mt.