SMM Zinc Market Daily Review (2014-10-27)

SHANGHAI, Oct. 28 (SMM) – SHFE 1412 zinc contract prices opened at RMB 16,660/mt last Friday, then falling from RMB 16,660/mt due to selling pressure, dipping to as low as RMB 16,555/mt and closing at RMB 16,595/mt, down RMB 20/mt or 0.12%. SHFE 1412 zinc contract prices opened at RMB 16,595/mt October 27, moving between RMB 16,580-16,620/mt in the morning, and plunging to RMB 16,500/mt in the afternoon, and closing at RMB 16,555/mt, down RMB 60/mt or 0.36%. Trading volumes decreased 46,028, to 242,234 lots, and total positions were down 11,820 lots to 132,828 lots. SHFE 1412 zinc contract prices are expected to fall further with LME zinc prices.

#0 zinc prices were between RMB 16,860-16,910/mt, with spot premiums of RMB 280-310/mt against SHFE 1412 zinc contract prices. #1 zinc prices were between RMB 16,820-16,840/mt. SHFE 1412 zinc contract prices were down RMB 10/mt from the previous trading day, with spot premiums falling to RMB 280-310/mt. Smelters and cargo holders both increased sales to generate cash. But trading was muted due to weak downstream buying interest from cash flow tightness and market pessimism. Shuangyan branded #0 zinc prices were RMB 16,900-16,910/mt, and prices for Yuguang zinc were RMB 16,880-16,890/mt. Qilin, Jiulong and Qinxin zinc prices were RMB 16,870-16,880/mt, with RMB 16,860-16,880/mt for Mengzi and Baiyin zinc. Belgian #0 zinc prices were RMB 16,840-16,860/mt. SHFE 1412 zinc contract prices fell RMB 50/mt in the afternoon, but spot premiums remained largely unchanged between RMB 280-310/mt, with RMB 260/mt for some brands. Traders see spot premiums dropping on month-end factor and abating market sentiment. Downstream buyers also held cautious.

LME zinc prices dipped to a near-four-month low early last week before rising. With regard to zinc price trends this week, SMM surveyed 30 market players and found that 53% are cautious, believing LME zinc prices will move between USD 2,235-2,275/mt, and SHFE 1412 zinc contract prices will fluctuate between RMB 16,400-16,700/mt. Fed’s October policy meeting and US Q3 growth figures will be the primary focus of markets this week. The Fed is expected to draw QE3 to a close whilst discussing when to raise interest rate due to rising inflation, which will fret investors. When combined with a stronger US dollar index, commodity prices should pull down. US Q3 growth, September durable goods orders and October CPI in the euro zone scheduled for release this week are expected to be mixed, which will drive up commodity price volatility.

34% are bearish, seeing LME zinc prices fall to USD 2,220/mt, and SHFE 1412 zinc contract prices dip to RMB 16,300/mt. smelters sell actively at the month’s end, but traders were unwilling to purchase. When combined sluggish downstream buying interest, spot premiums will fall from RMB 350/mt. Moreover, additional imported zinc will flow to the market this week as the SHFE/LME zinc price ratio rose to 7.5, which will affect domestic markets. Environmental protection inspections ahead of the APEC meeting will also impact zinc demand.

The remaining 13% are bullish, believing LME zinc prices will rebound to USD 2,290/mt, and SHFE 1412 zinc contract prices will test resistance from RMB 16,800/mt. They think major macroeconomic indicators from China and euro zone inverted recently, which helped ease market concerns and will attract bargain hunters into the market. WBMS data show a deficit of 64,700 mt in global zinc market during January and August. Moreover, LME zinc inventories fell over the past month, and stocks in Shanghai, Tianjin and Guangdong also dropped further, with Guangdong’s stocks hitting a record five-year low. These factors will combine to bolster zinc prices.