SMM Zinc Market Daily Review (2014-8-25)

SHANGHAI, Aug. 26 (SMM) – SHFE 1410 zinc contract prices opened at RMB 16,845/mt last Friday evening, then fell to the 5-day moving average as a large number of longs left the market on falling LME zinc prices, and closing at RMB 16,735/mt, down RMB 135/mt or 0.8%. Trading volumes decreased by 10,562 to 238,450 lots, and total positions grew by 102 to 216,468 lots. SHFE 1410 zinc contract prices opened at RMB 16,735/mt on Monday. As the LME market is closed today due to the summer bank holiday, SHFE 1410 zinc contract prices dropped initially then rose, dipping to RMB 16,660/mt in the morning. But since a large number of bargain hunters entered the market, SHFE 1410 zinc contract prices rallied to RMB 16,700/mt, and hovered around RMB 16,750/mt in the afternoon, closing at RMB 16,740/mt, down RMB 130/mt or 0.77%. Trading volumes decreased by 134,966 lots, to 396,736 lots, and total positions decreased by 16,812 lots to 199,554 lots. SHFE 1410 zinc contract prices are expected to move sideways this evening with the lack of directions from the LME market.

#0 zinc prices were between RMB 16,730-16,800/mt, with spot premiums between RMB 50-80/mt against SHFE 1410 zinc contract prices, and spot premiums against SHFE 1411 zinc contract prices were RMB 10-40/mt. #1 zinc prices were between RMB 16,680-16,730/mt. SHFE 1410 zinc contract prices fell to RMB 16,660-16,690/mt after opening, causing transactions to improve. But as SHFE 1410 zinc contract prices rallied later the day, spot premiums drop to RMB 10-30/mt. Spot goods arrivals were still limited. But traders are actively purchasing near-term futures whilst selling long-term future contracts. Traders were also selling enthusiastically on falling SHFE zinc prices. Speculators bought goods at lower prices. Spot premiums of #0 zinc dropped to RMB 10/mt at the end of trading, causing some bargain hunters to enter the market. Shuangyan branded #0 zinc prices were RMB 16,750-16,800/mt, with RMB 16,730-16,780/mt for Yuguang and Baiyin zinc. Qinxin, Qilin, Jiulong and SMC zinc prices were 16,730-16,770/mt. AZ zinc prices were RMB 16,710-16,730/mt, and RMB 16,680-16,720/mt for other imported zinc. SHFE 1410 zinc contract prices hovered in the narrow range in the afternoon, with transactions muted and spot premiums between RMB 20-40/mt against SHFE 1411 zinc contract prices. Spot #0 zinc prices between RMB 16,780-16,840/mt.

LME zinc prices rebounded last week by nearly 3%. With regard to zinc price trends this week, SMM surveyed 30 market players and found that 34% believe zinc prices will level out. LME zinc prices will hover between USD 2,325-2,375/mt, and SHFE 1410 zinc contract prices will fluctuate between RMB 16,600-16,900/mt. The US dollar index rose to a 11-month high recently in anticipation of interest rate hike by the US Fed, which will weigh on zinc prices. LME zinc prices should resist both increases and declines. Spot premiums of #0 zinc against SHFE 1410 zinc contract prices will struggle around RMB 50/mt, leaving traders watch on the sidelines. Downstream demand will be also soft.

23% are bullish toward zinc prices, believing LME zinc prices will rise to USD 2,400/mt, and SHFE 1410 zinc contract prices will climb to RMB 17,000/mt. They base their opinion on upbeat US housing data and manufacturing figures in July, which bodes well for major economic data from the US scheduled for release today.US Q2 GDP is expected to be optimistic, boosting zinc prices. Besides, LME zinc inventories fell 3,250 mt to 734,600 mt, which will also bolster zinc prices.

43% see zinc prices falling. LME zinc prices are expected to fall to USD 2,300/mt, and SHFE 1410 zinc contract prices will dip to RMB 16,400-16,500/mt, with spot premiums against SHFE 1410 zinc contract prices between RMB 50-100/mt. Limited supply from smelters will keep goods availability low, allowing cargo holders to hold back goods. But downstream buying interest will be low due to month-end cash flow tightness which, when combined with the slow season, will constrain spot trading. This will weigh down zinc prices.