SMM Zinc Market Daily Review (2014-7-7)

SHANGHAI, Jul. 8 (SMM) – SHFE 1409 zinc contract prices opened at RMB 16,240/mt last Friday evening, then moved between RMB 16,130-16,230/mt, and closing at RMB 16,170/mt, down RMB 20/mt or 0.12%. Trading volumes decreased by 88,548 lots, to 111,740 lots, and total positions increased by 2,216 lots to 223,106 lots. SHFE 1409 zinc contract prices opened at RMB 16,165/mt on Monday, and then dropped below RMB 16,000/mt as a large number of longs left the market, dipping to as low as RMB 15,950/mt, and closing at RMB 16,040/mt, down RMB 150/mt or 0.93%. Trading volumes increased by 14,038 lots, to 207,006 lots, and total positions of SHFE 1409 zinc contracts decreased by 23,542 lots to 199,564 lots.
 
#0 zinc prices were between RMB 15,900-15,930/mt, with spot discounts of RMB 60-100/mt against SHFE 1409 zinc contract prices. #1 zinc prices were between RMB 15,840-15,850/mt. SHFE 1409 zinc contract prices opened higher but fell, with mainstream brands #0 zinc prices between RMB 15,950-15,980/mt, and with spot discounts between RMB 150-120/mt. During the second trading session, SHFE 1409 zinc contract prices dipped to RMB 15,950/mt, then rallied to RMB 16,000/mt, with spot discounts narrowing to RMB 60-100/mt against SHFE 1409 zinc contract prices. Smelters were holding prices firm, while traders were actively selling due to narrowing discounts. Downstream buyers mostly purchased on an as-needed basis, with transactions muted. Shuangyan branded #0 prices were between RMB 15,960-15,980/mt early in the morning, and RMB 15,910-15,930/mt during the second trading session, and RMB 15,910-15,920/mt for Yuguang branded #0 zinc. Supply of other domestic brands was tight, and RMB 15,860-15,870/mt for regular imported zinc. SHFE 1409 zinc contract prices leveled out in the afternoon and rose slightly at the end of trading, with transactions muted due to a wait-and-see attitude, and #0 prices between RMB 15,900-15,930/mt.

LME zinc prices continued to rise last week and hit a 32-month high. With regard to zinc price trends hits week, SMM undertook a survey and found that 70% are bearish, believing a large number of investors will leave the market after profit-taking this week. LME zinc prices soared to a record high in early July when US non-farm employment data was released, but then fell back as some investors exited the market. With the lack of additional positive news, LME zinc prices will have room to fall further, but will regain momentum in the near future as overseas mines cut or suspend operation and since LME zinc inventories continue to fall. SHFE 1409 zinc contract prices will move between RMB 15,800-16,050/mt with an exodus of speculative capital. With limited spot zinc supply and market optimism in a medium-to-long term point of view, China’s domestic spot zinc prices will resist declines, with spot discounts narrowing to zero.

The remaining 30% are neutral. LME zinc price volatility will decrease this week. Positive effects from improving economy in China and Premier Li’s statement have been absorbed, when combined with a rising US dollar index, LME zinc prices will hover between USD 2,210-2,250/mt, and SHFE 1409 zinc contract prices will find solid support from RMB 16,000/mt and move between RMB 15,950-16,200/mt this week, with spot discounts around RMB 100/mt.