SMM Zinc Market Daily Review (2014-10-13)

SHANGHAI, Oct. 14 (SMM) – SHFE 1412 zinc contract prices opened at RMB 16,650/mt last Friday evening, and touched as high as RMB 16,760/mt, and closed at RMB 16,755/mt, down RMB 55/mt or 0.33%. Trading volumes decreased 38,426 to 230,204 lots, and total positions increased by 2,676 to 175,484 lots. SHFE 1412 zinc contract prices opened at RMB 16,750/mt October 13, touching as high as RMB 16,880/mt in the morning. But due to the lack of buyers, SHFE 1412 zinc contract prices lost early gains and and closed at RMB 16,805/mt, down RMB 5/mt or 0.03%. Trading volumes decreased 105,362, to 403,972 lots, and total positions were down by 5,634 lots to 167,174 lots. SHFE 1412 zinc contract prices are expected to fluctuate around the 5-day moving average.

#0 zinc prices were between RMB 16,970-17,030/mt, with spot premiums of RMB 180-230/mt against SHFE 1412 zinc contract prices. #1 zinc prices were between RMB 16,940-16,950/mt. SHFE 1412 zinc contract prices fluctuated between RMB 16,790-16,800/mt after opening, with spot premiums between RMB 180-230/mt. Smelters by in large sold normally which, combined with ample supply of Qilin zinc, cargo holders moved goods actively. This led to sufficient supply and caused spot premiums to fall slightly. Trading was brisk, but downstream buyers purchased as needed.

Shuangyan branded #0 zinc prices were RMB 17,000-17,030/mt, and prices for Yuguang were RMB 17,000-17,020/mt. Qilin, Qinxin, Jiulong and Feilong zinc prices were RMB 16,980-17,010/mt. Prices for Tongguan, Tiefeng and Baiyin were RMB 16,970-16,990/mt. SHFE 1412 zinc contract prices consolidated in the afternoon. The price spread between SHFE spot-month and SHFE 1412 zinc contracts narrowed to RMB 100/mt, but spot premiums remained between RMB 180-220/mt, keeping traders on the sidelines. Spot zinc prices were RMB 16,960-17,020/mt.

LME zinc prices hovered above USD 2,300/mt after the Chinese National Day holiday. With regard to zinc price trends this week, SMM surveyed 30 market players and found that 50% take a neutral posture, believing LME zinc prices will fluctuate between USD 2,300-2,350/mt, and SHFE 1412 zinc contract prices will move between RMB 16,600-17,000/mt. They base their opinion on poor economic situations in China and other countries. The IMF lowered its forecast of global economic growth, which will also curb base metal demand. But China’s trade data released on Monday stabilized, and this will help soothe the market. Market expectations over zinc concentrate shortfalls will also bolster zinc prices.

30% are bearish, believing LME zinc prices will drop below USD 2,300/mt, and SHFE 1412 zinc contract prices will inch down to RMB 16,500-16,600/mt. Market concerns over euro zone economic recovery and a likelihood of deflation will negatively affect base metals. This will be all the more so now that it is clear that China will not advance any significant stimulus before year’s end. Moreover, China also lowered its forecast for economic growth. Shanghai supply tightness will improve now that Guangdong’s goods were shipped to Shanghai due to large price spread between the regions, which will in turn pull down spot premiums in the latter.

20% are bullish, seeing LME zinc prices rise to USD 2,370/mt, and SHFE 1412 zinc contract prices break through RMB 17,000/mt. The Fed’s Deputy Chairman Stanley Fischer worse-than-expected global economic growth will lead to a slower interest rate hike. This will weigh down the US dollar index whilst driving up base metals prices. Positive measures for China’s property market, combined with strong market fundamentals, will also pull up zinc prices in the near term.