SMM Zinc Market Daily Review (2015-5-11)

SHANGHAI, May 13 (SMM) –SHFE 1507 zinc contract prices opened at RMB 17,120/mt last Friday evening, then touched RMB 17,190/mt, then fell back below the 10-day moving average and closed at RMB 17,040/mt, down RMB 100/mt or 0.58%. Trading volumes increased 14,350 to 76,636 lots, and total positions declined 1,104 to 153,454. SHFE 1507 zinc contract prices opened at RMB 17,040/mt on Monday, then dipped to as low as RMB 16,925/mt as the news of China’s interest rate cut had been absorbed, but rallied to RMB 17,000/mt in the afternoon, and closed at RMB 17,095/mt, down RMB 45/mt or 0.26%. Trading volumes decreased 4,856 to 160,890 lots, and total positions fell 3,476 to 151,082. SHFE 1507 zinc contract prices are expected to fall further in the near term.

#0 zinc prices were between RMB 16,860-16,900/mt, RMB 150-110/mt below SHFE 1507 zinc contract prices. #1 zinc was traded between RMB 16,820-16,830/mt. SHFE 1507 zinc contract prices fell to RMB 16,925/mt then rose to RMB 17,000/mt. Smelters mostly sold normally, and trading made between traders was brisk. Downstream buyers purchased as needed, with overall transactions active. Shuangyan and Huize #0 zinc prices were RMB 16,890-16,900/mt, RMB 120-110/mt below SHFE 1507 zinc contract prices. Yuguang #0 zinc prices were RMB 16,880-16,890/mt, RMB 130-120/mt below SHFE 1507 zinc contract prices. Qilin and Qinxin #0 zinc prices were RMB 16,860-16,880/mt, with spot discounts of RMB 150-130/mt against SHFE 1507 zinc contract prices. Baohui and Bailing #0 zinc prices were RMB 16,850-16,860/mt, with spot discounts of RMB 170-160/mt against SHFE 1507 zinc contract prices. SMC and AZ #0 zinc prices were RMB 16,830-16,840/mt, with spot discounts of RMB 150-140/mt against SHFE 1507 zinc contract prices. Indian #0 zinc prices were RMB 16,810-16,820/mt, with spot discounts of RMB 170/mt against SHFE 1507 zinc contract prices. SHFE 1507 zinc contract prices dropped more slowly in the afternoon, with spot discounts of Shuanyan and Yuguang #0 zinc expanding to RMB 140/mt. Transactions were brisk.

LME zinc prices touched USD 2,400/mt at one point last week. With regard to zinc price trends this week, SMM surveyed 30 market players to find that 40% are bearish, believing LME zinc prices will fall to USD 2,320/mt and SHFE 1507 zinc contract prices will test support from RMB 16,800/mt. China lowered interest rate again, meaning Chinese economy is facing pressure, and this news has been absorbed. Inventories in Shanghai, Guangdong and Tianjin stay high. Galvanizers in Tianjin’s Daqiu Village were impacted by environmental protections, which should take a toll on zinc prices in May.

37% are neutral, seeing LME zinc prices fluctuate between USD 2,330-2,370/mt, and SHFE 1507 zinc contract prices moving between RMB 16,850-17,150/mt. Positions on SHFE zinc declined nearly 30,000 recently, and market fundamental is still weak. Operating rates at zinc smelters are higher than the same period last as domestic zinc concentrate TCs climbed to RMB 5,400-5,500/mt (zinc content). Despite decreasing zinc imports from low SMM/LME zinc price ratio, zinc remains in oversupply, with spot discounts above RMB 100/mt.

23% are bullish, thinking LME zinc prices should rise to USD 2,380/mt, and SHFE 1507 zinc contract prices will edge up to RMB 17,200/mt. They base their opinion on improving economic indicators from the euro zone. Meanwhile, US employment data were poor, weighing down the US dollar index. Crude oil prices stay above USD 60/bbl. China’s second interest rate cut this year will be positive for base metals prices. Some cargo holders were unwilling to sell on falling zinc prices, suggesting they are still optimistic toward the market.