SMM Zinc Market Daily Review (2015-2-2)

SHANGHAI, Feb. 3 (SMM) –SHFE 1504 zinc contract prices opened at RMB 16,145/mt last Friday evening, then inched up and closed at RMB 16,190/mt, up RMB 140/mt or 0.87%. Trading volumes decreased 8,712 to 66,382 lots, and total positions decreased 2,862 to 148,286. SHFE 1504 zinc contract prices opened at RMB 16,190/mt on Monday, then inched up to RMB 16,260/mt in the morning, but lacked impetus to rise further and closed at RMB 16,200/mt, up RMB 150/mt or 0.93%. Trading volumes increased 10,574 to 152,516 lots, and total positions increased 2,654 to 153,802. SHFE 1504 zinc contract prices are expected to consolidate this evening.

#0 zinc prices were between RMB 16,230-16,290/mt, with spot premiums of RMB 10-60/mt against SHFE 1503 zinc contract prices. #1 zinc prices were RMB 16,160-16,180/mt. SHFE 1503 zinc contract prices hovered around RMB 16,230/mt, up RMB 100/mt, with spot premiums narrowing from RMB 30-70/mt to RMB 10-50/mt. Premiums for Shuangyan zinc were RMB 30/mt, and those for some regular brands decreased to zero. Smelters sold actively, with a large volume of lower-priced imported zinc readily available. Traders withdrew due to the lack of term contracts which, combined with sluggish downstream demand, left the market lackluster. Shuangyan #0 zinc prices were RMB 16,270-16,290/mt, RMB 50-70/mt above SHFE 1503 zinc contract prices, or RMB 30/mt above the latter. Yuguang #0 zinc prices were RMB 16,260-16,280/mt, RMB 40-60/mt above SHFE 1503 zinc contract prices. Qilin, Qinxin, Mengzi and Jiulong zinc prices were between RMB 16,230-16,250/mt, RMB 0-30/mt above SHFE 1503 zinc contract prices. SMC #0 zinc prices were between RMB 16,200-16,210/mt, RMB 0-20/mt below SHFE 1503 zinc contract prices. SHFE 1504 zinc contract prices rose significantly in the afternoon, but failed to stimulate investors. Spot premiums of Shuangyan zinc against SHFE 1503 zinc contract prices were between RMB 0-30/mt, with spot premiums for other brands even narrowing to zero.

LME zinc prices fell with LME copper and crude oil prices last week. Will zinc prices stop falling this week?

SMM surveyed 30 market players to find that 47% are neutral, believing LME zinc prices will fluctuate between USD 2,105-2,145/mt this week, and SHFE 1504 zinc contract prices will hover between RMB 16,050-16,350/mt. Despite a steady recovery in the US, major economic indicators from China and Europe will continue to weigh on the market. In addition, LME copper and crude oil prices remain in a downward track. However, supports for LME zinc will also be strong.

40% are bullish, seeing LME zinc prices rising to USD 2,165/mt and SHFE 1504 zinc contract prices climbing to RMB 16,500/mt. LME copper prices are expected to stabilize, and Goldman Sachs also changed its bearish stance. Crude oil prices rebounded 8%, rising most significantly in 2.5 years. Despite sluggish economic indicators from China and Europe, LME copper prices look set to rebound, which will boost LME zinc prices. However, any increases will be limited, constrained by soft demand and lackluster economic situations.

13% are bearish, believing LME zinc prices will fall below USD 2,100/mt and SHFE 1504 zinc contract prices will drop to RMB 16,000/mt. Poor economic data from China and increasing deflationary pressure in Europe, Greek turmoil and falling crude oil prices will compound pressure on base metals prices. Besides, a large influx of imported zinc from improving SMM/LME zinc price ratio and high operating rates at smelters led to oversupply and slow sales, especially in Shanghai. In this context, spot premiums slid from RMB 200-300/mt to RMB 0-50/mt.