SMM Zinc Market Daily Review (2015-8-31)

SHANGHAI, Sep. 1 (SMM) –SHFE 1510 zinc contract prices opened at RMB 14,800/mt last Friday evening, then move between RMB 14,740-14,880/mt and closed at RMB 14,855/mt, up RMB 210/mt or 1.43%. SHFE 1511 zinc contract prices fell after opening and moved between RMB 14,650-14,700/mt, and closed at RMB 14,655/mt, up RMB 80/mt or 0.55%. Trading volumes decreased 22,312 to 78,952 lots, and total positions grew 5,342 to 118,900.

#0 zinc prices were between RMB 14,840-14,910/mt, RMB 90-200/mt above SHFE 1510 zinc contract prices, with spot premiums as high as RMB 300/mt in the morning. #1 zinc supply was tight, with prices of RMB 14,770-14,780/mt. Imported #0 zinc prices were RMB 70/mt below or RMB 30/mt above SHFE 1510 zinc contract prices. Smelters sold normally, leaving supply sufficient. Traders and downstream buyers, however, refrained from buying due to cash tightness. Mainstream brands were traded between RMB 14,830-14,890 in the afternoon, with discounts of Japanese and South Korean zinc widening to RMB 30-50/mt against SHFE 1510 zinc contract prices. Overall transactions did not improve.

LME zinc prices dipped initially then rallied to USD 1,800/mt last week. Will LME zinc price extend gains this week? SMM surveyed over 30 market players to find that 66% are neutral, believing LME zinc prices will move between USD 1,780-1,840/mt, and SHFE 1510 zinc contract prices will hover between RMB 14,500-14,800/mt. They expect a large number of investors will leave the market due to the three days holiday in China. Besides, total positions on SHFE zinc decreased over 10,000, meaning growing risk aversion. Nonetheless, US economic indicators continue to improve, boosting market sentiment. Demand in major Chinese markets has been sluggish, though.

17% are bullish, expecting LME zinc prices to rise to USD 1,850/mt, and SHFE 1510 zinc contract prices to return to RMB 15,000/mt mark. Improving China’s A-share market compared with growing expectation of additional stimulus measures from China will boost market sentiment. SHFE zinc prices also find technical support. On the fundamental front, TCs for imported zinc concentrate trended downward as zinc concentrate supply in South China remains tight. Port inventories were also limited. Besides, some smelters in South China cut output. When combined with firm spot premiums in some regions, zinc prices should find some support.

17% are bearish, seeing LME zinc prices fall to USD 1,750/mt and SHFE 1510 zinc contract prices down to RMB 14,200/mt. They cited nearing interest rate hike by the Fed expected. Besides, ADP’s employment data for the US and US non-farm employment figures are promising, which will bolster the US dollar whilst weighing down base metals. A large inflow of imported zinc will weigh down domestic zinc prices. Moreover, a large number of galvanizers in North China cut or suspended production late August, dampening zinc demand and in turn putting pressure on zinc prices.