SMM Zinc Market Daily Review (2015-5-25)

SHANGHAI, May 26 (SMM) – The shift was made to SHFE 1508 zinc contracts last week, with prices opening at RMB 16,500/mt last Friday evening, then hovered around RMB 16,530/mt, and closed at RMB 16,545/mt, down RMB 110/mt or 0.66%. Total positions grew 4,950 to 84,316. SHFE 1507 zinc contract prices opened at RMB 16,545/mt on Monday, then fluctuated between RMB 16,500-16,600/mt with the lack of direction from the LME market, and closed at RMB 16,545/mt, down RMB 110/mt or 0.66%. Trading volumes decreased 14,502 to 64,368 lots, and total positions grew 4,434 to 84,232. SHFE 1508 zinc contract prices are expected to test support from the 60-day moving average this evening.

#0 zinc prices were between RMB 16,440-16,460/mt, RMB 80-70/mt below SHFE 1507 zinc contract prices. #1 zinc was traded between RMB 16,400-16,420/mt. SHFE 1507 zinc contract prices fluctuated between RMB 16,520-16,530/mt, down RMB 100/mt from last Friday. Some optimistic smelters were holding back goods on falling zinc prices, causing spot supply to decrease. But arbitrage traders sold actively, and downstream buyers purchased as needed, leaving overall transactions brisk. Shuangyan #0 zinc prices were RMB 16,450-16,460/mt, RMB 70/mt below SHFE 1507 zinc contract prices. Yuguang #0 zinc prices were RMB 16,440-16,450/mt, RMB 80/mt below SHFE 1507 zinc contract prices. Qilin, Feilong and Qinxin #0 zinc prices were RMB 16,440-16,450/mt, with spot discounts of RMB 80/mt against SHFE 1507 zinc contract prices. SMC and Baohui #0 zinc prices were RMB 16,410-16,420/mt, with spot discounts of RMB 120-100/mt against SHFE 1507 zinc contract prices. Indian #0 zinc prices were RMB 16,370-16,390/mt, with spot discounts of RMB 150-140/mt against SHFE 1507 zinc contract prices. SHFE 1507 zinc contract prices remained steady in the afternoon, with spot discounts largely unchanged.

LME zinc prices tumbled over USD 100/mt last week to hit a new low over the last six weeks. Will LME zinc prices stabilize this week? SMM surveyed 30 market players to find that 57% are pessimistic, believing LME zinc prices will fall to USD 2,150/mt, and SHFE 1508 zinc contract prices will drop to RMB 16,300/mt. They base their opinion on the unpromising profit at large industrials in April slated for release this week, weighing on base metals prices. Besides, the US dollar index regained ground recently, which will also put base metals prices into pressure. LME zinc inventories grew significantly, allowing backwardation on LME zinc to invert to contango.

23% are bullish, seeing LME zinc prices rebound to USD 2,220/mt, and SHFE 1508 zinc contract prices jumping to RMB 16,700/mt. LME zinc prices have fallen sharply recently. Inventories in Shanghai, Tianjin and Guangdong fell over 1,000 mt in total, their most significant drop for the year. Inventories in Guangdong dropped nearly 10,000 mt during April-May, and Tianjin also reported tight supply, allowing spot discounts to invert to premiums. Spot discounts in Guangdong are also expected to improve.

20% are neutral, seeing LME zinc prices fluctuating between USD 2,150-2,200/mt, and SHFE 1508 zinc contract prices moving between RMB 16,350-16,650/mt. US new homes sales for April, durable goods orders, the University of Michigan’s CCI for May and Q1 growth – all slated for release this week – all look promising, boosting the US dollar index and putting base metal prices under pressure. Eurozone M3 supply in April will also be announced this week. The announced acceleration of Quantitative Easing, combined with chronic Greek crisis, will continue to weigh the euro down this week. Nonetheless, the number of shorts entering the market is still limited.