SMM Zinc Market Daily Review (2015-7-6)

SHANGHAI, Jul. 7 (SMM) – SHFE 1509 zinc contract prices opened at RMB 15,470/mt last Friday evening, then fell to RMB 15,300-15,350/mt, and closed at RMB 15,435/mt, down RMB 105/mt. SHFE 1509 zinc contract prices fell after opening on Monday and dipped to a new low of RMB 15,010/mt since April 11, 2014, and closed at RMB 15,145/mt, down RMB 395/mt or 2.54%. Trading volumes increased 19,346 to 151,242 lots, and total positions decreased 1,704 to 139,232. SHFE 1509 zinc contract prices will look for price floor this evening.

#0 zinc prices were between RMB 15,300-15,370/mt, RMB 10-40/mt above SHFE 1509 zinc contract prices. #1 zinc prices were RMB 15,280-15,320/mt. SHFE 1509 zinc contract prices fluctuated around RMB 15,350/mt during 9:00-10:15 am, with spot premiums of RMB 10-30/mt against the first, and trading quiet. During 10:30-11:30 am, SHFE 1509 zinc contract prices fell to RMB 15,270-15,280/mt, with spot premiums expanding to RMB 20-40/mt. Smelters held back goods on falling zinc prices, and traders were also unwilling to sell. Some traders purchased at lower prices, allowing overall trading to improve. Downstream buyers also purchased at lows. SHFE 1509 zinc contract prices dipped to RMB 15,010/mt in the afternoon, causing spot premiums to expand to RMB 80/mt. SHFE 1509 zinc contract prices stabilized at RMB 15,100/mt at the end of trading, with spot trading muted.

Will LME zinc price stop falling this week?

SMM surveyed 30 market players to find that 43% are bearish, believing LME zinc prices will fall toward USD 1,960/mt, and SHFE 1509 zinc contract prices will fall to RMB 14,800-15,000/mt. The likelihood of a Grexit increased. A series of stimulus measures from China failed to boost China’s A-shares significantly, growing market concerns toward China’s demand. LME zinc prices have fallen for four days in a row, meaning strong selling pressure. The low-demand month of July combined with high home appliance inventories from the cooler weather will dampen demand for galvanized plate. Meanwhile, the falling SMM/LME zinc price ratio allowed bonded zone inventories to grow, weighing down import premiums, also negatively affecting zinc prices.

37% are neutral, believing LME zinc prices will fluctuate between USD 1,980-2,040/mt, and SHFE 1509 zinc contract prices will hover between RMB 15,000-15,500/mt. Contango on LME zinc narrowed from USD 16/mt to USD 5/mt, lending support to zinc prices. Smelters have held back goods on continuously falling zinc prices. Zinc futures prices also need to rebound from a sharp previous drop. However, sluggish rebar and iron ore prices will weigh on zinc prices.

20% are bullish, expecting zinc prices to rise to USD 2,050/mt and SHFE 1509 zinc prices to edge up to RMB 15,500-15,800/mt. Zinc concentrate tightness in South China from environmental protection inspections combined with weak zinc prices depressed smelter production. Many zinc smelters plan to undertake maintenance during July-August, reducing zinc supply. When combined with falling imports from lower SMM/LME zinc price ratio, zinc prices will find some support.