SMM Zinc Market Daily Review (2015-6-23)

SHANGHAI, Jun. 24 (SMM) –The SHFE market was closed yesterday due to the Dragon Boat Festival in China. SHFE 1508 zinc contract prices opened at RMB 15,895/mt Thursday evening, then dropped below RMB 15,800/mt, dipping to a three-month low of RMB 15740/mt and closed at RMB 15,760/mt, down RMB 125/mt or 0.79%. Trading volumes increased 5,578 to 56,042 lots, and total positions grew 1,212 to 118,152.

#0 zinc prices were between RMB 15,670-15,700/mt, RMB 0-30/mt above SHFE 1508 zinc contract prices. #1 zinc prices were RMB 15,600-15,640/mt. SHFE 1508 zinc contract prices fluctuated between RMB 15,680-15,690/mt, with spot premiums of RMB 20-40/mt in the morning, which fell to RMB 0-30/mt later on due to soft demand. SHFE 1508 zinc contract prices plummeted to RMB 15,565/mt at noon, dipping to their lowest since late March RMB 15,565/mt, with spot premiums between RMB 40-50/mt, but trading quiet. Smelters mostly held back goods, and traders sold proactively to generate cash, leaving supply sufficient. Downstream buyers purchased as needed, leaving overall transactions quiet. SHFE 1508 zinc contract prices hovered around RMB 15,600/mt in the afternoon, with spot premiums between RMB 10-40/mt.

LME zinc prices posted a 6-day losing streak and dipped to a 3-month low last week. Will LME zinc price stop falling this week?

SMM surveyed 30 market players to find that 53% are neutral, believing LME zinc prices will stabilize between USD 2,020-2,050/mt, and SHFE 1508 zinc contract prices will fluctuate between RMB 15,500-15,800/mt. Soft demand, combined with economic pressure and plunging A-share market are expected to precipitate additional stimulus measures from China, inspiring market sentiment. But ongoing Greek crisis will grow risk aversion, weighing on the euro. Mid-year cash tightness will also constrain zinc price gains.

37% are pessimistic, seeing LME zinc prices falling to USD 2,000/mt mark, and SHFE 1508 zinc contract prices down to RMB 15,300/mt. SHEF zinc prices have been falling over the past two weeks, weighing down spot zinc prices, with spot premiums of RMB 0-30/mt against SHFE 1508 zinc contract prices. The SMM/LME zinc price ratio hovered around 7.6-7.65, constraining imports and also dragging down zinc prices.

10% are bullish, expecting LME zinc prices to rebound to USD 2,050/mt and SHFE 1508 zinc contract prices to rise to RMB 15,800-16,000/mt. The property market improved some as China’s easy monetary measures show some results. Meanwhile, HSBC’s June PMI topped market expectations, which will help grow market sentiment. When combined with plunging A-share in China, a large inflow of capital is expected in the commodity market. Smelters will hold back goods on tight supply and falling zinc prices. In addition, inventories in China’s three major markets have fallen for five consecutive weeks, giving support to zinc prices.