SMM Zinc Market Daily Review (2015-8-17)

SHANGHAI, Aug. 18 (SMM) – SHFE 1510 zinc contract prices opened at RMB 14,990/mt last Friday evening, then fluctuated around RMB 14,950/mt, and closed at RMB 14,940/mt, up RMB 30/mt or 0.2%. SHFE 1510 zinc contract prices fell after opening on Monday, dipping to as low as RMB 14,810/mt, but rallied later and closed at RMB 14,905/mt, down RMB 5/mt or 0.03%. Trading volumes decreased 998 to 108,446 lots, and total positions decreased 2,792 to 147,680. SHFE 1509 zinc contract prices will test support from the 20-day moving average.  

#0 zinc prices were between RMB 15,050-15,080/mt, RMB 220-240/mt above SHFE 1510 zinc contract prices on Monday. #1 zinc prices were RMB 15,010-15,040/mt. Spot premiums of imported #0 zinc were RMB 120-150/mt against SHFE 1510 zinc contract prices. SHFE 1510 zinc contract prices were around RMB 14,840/mt. Smelters sold modestly as supply of registered #0 zinc was sufficient, with spot premiums narrowing. Downstream buyers bought as needed, with trading muted and traded prices between RMB在15,090-15,120/mt in the afternoon.

LME zinc prices found support from USD 1,800/mt last week. SHFE zinc prices stood at the 5-day moving average. Will LME zinc prices rise this week?

SMM surveyed over 30 market players to find that 46% are bearish, believing LME zinc prices will fall to USD 1,780-1,800/mt this week, and SHFE 1510 zinc contract prices will drop to RMB 14,200-14,500/mt. Market concerns over China’s demand grew on yuan’s depreciation, and the falling crude oil prices also depressed market sentiment. On the fundamental front, a growing number of smelters plan to conduct maintenance in August, but the rising SMM/LME zinc price ratio have led to large inflows of imported zinc, leaving supply healthy. Consumption in North China, however, will be soft due to environmental protection inspections, weighing on zinc prices. Premiums on zinc prices in Tianjin against Shanghai prices fell rapidly, and spot premiums of zinc prices in Shanghai against SHFE 1510 zinc contract prices narrowed to RMB 200-250/mt.

41% are neutral, seeing LME zinc prices moving between USD 1,800-1,860/mt, and SHFE 1510 zinc contract prices hovering between RMB 14,600-15,200/mt. Yuan’s depreciation increased uncertainty when the Fed will raise interest rate, leaving investors cautious. Total positions on SHFE zinc declined over 30,000 last week, meaning a large number of shorts left the market. SHFE 1510 zinc contract prices are found to be support by the 5, 10 and 20-day moving averages, but meet resistance from the 30 and 40-day moving averages.

The remaining 13% are bullish, expecting LME zinc prices to rise to USD 1,880/mt and SHFE 1510 zinc contract prices to stand at RMB 15,200/mt. Spot prices will have room to climb further on the depreciation of yuan. Zinc prices near cost lines of smelters will constrain their production. Shorts dare not enter the market due to the high-demand month of September. Besides, SHFE zinc prices will also find technical support.