SMM Zinc Market Daily Review (2015-4-7)

SHANGHAI, Apr. 8 (SMM) – SHFE 1506 zinc contract prices opened at RMB 16,160/mt Thursday, then inched up to and held stable at RMB 16,200/mt, and closed the day at RMB 16,215/mt, up RMB 90/mt or 0.56%. Trading volumes were up 10,956 to 69,500 lots, and total positions increased 3,084 to 136,226. SHFE 1506 zinc contract prices should rise this evening.

#0 zinc prices were between RMB 16,060-16,080/mt, RMB 110-90/mt below SHFE 1506 zinc contract prices. #1 zinc was traded between RMB 15,970-15,980/mt. SHFE 1506 zinc contract prices surged to RMB 16,220/mt after opening, then fell to RMB 16,170/mt, causing spot discounts to narrow to RMB 120-100/mt. Some smelters sold goods at firm prices. When combined with rising SHFE zinc prices, traders held back goods, leading to tight supply. Downstream buying interest was weak, with transactions mainly made between traders.

Shuangyan #0 zinc prices were RMB 16,070-16,080/mt, RMB 100-90/mt below SHFE 1506 zinc contract prices, with trading heard at RMB 16,100/mt in the morning. Qinxin and Qilin #0 zinc prices were RMB 16,060-16,080/mt, with spot discounts of RMB 110-100/mt against SHFE 1506 zinc contract prices. SMC #0 zinc prices were RMB 16,070-16,080/mt, with spot discounts of RMB 130-120/mt against SHFE 1506 zinc contract prices. Indian and Netherlandish #0 zinc prices were RMB 15,980-16,000/mt, with spot discounts of RMB 200-190/mt against SHFE 1506 zinc contract prices. SHFE 1506 zinc contract prices rose to RMB 16,220/mt in the afternoon, driving up spot zinc prices and keeping spot discounts steady. With the lack of cheap resources, trading muted.

LME zinc prices broke through the 60-day moving average last week. With regard to zinc price trends this week, SMM surveyed 30 market players to find that 47% are bullish toward zinc prices, believing LME zinc prices will rise to USD 2,160/mt, and SHFE 1506 zinc contract prices will climb to RMB 16,300-16,400/mt. US March non-farm employment fell far short of market expectations, decreasing market expectations that the Fed will hike interest rate in H1. This pushed down the US dollar index and gave support to base metals prices. Long positions on SHFE zinc increased. In China’s spot markets, spot discounts were stable. Goods availability is low as some cargo holders hold onto their goods. When combined with decreasing inflows of imported zinc from the falling SMM/LME zinc price ratio, spot zinc prices will also receive support.

37% see LME zinc prices hovering between USD 2,115-2,145/mt, and SHFE 1506 zinc contract prices fluctuating between RMB 16,050-16,300/mt. the market still lacks longing, and spot zinc remains in oversupply. SHFE 1506 zinc contract prices will find solid support at the 60-day moving average, and will not fall noticeably in the near future.

16% are bearish, believing LME zinc prices will drop to USD 2,100/mt, and SHFE 1506 zinc contract prices will inch down to RMB 16,000/mt. Weak market fundamentals will weigh on zinc prices. Most domestic zinc smelters maintain high operating rates. Inventories in Shanghai have stayed high following the Chinese New Year holiday, with spot discounts nearly RMB 100/mt. Downstream producers reported sluggish orders. Galvanizers suspended production across Tianjin due to environmental protection inspections. This also depressed market demand and will negatively affect zinc prices.