SMM Zinc Market Daily Review (2015-9-28)

SHANGHAI, Sept. 29 (SMM) –There was no night trading on the SHFE last Friday due to the Mid-Autumn Festival. SHFE 1512 zinc contract prices opened at RMB 13,550/mt on Monday, and touched RMB 13,650/mt in the afternoon due to the exodus of shorts. With growing selling pressure, SHFE 1512 zinc contract prices plunged and closed at RMB 13,450/mt, down RMB 285/mt or 2.07%. Trading volumes were up 5,152 to 147,000 lots. Total positions decreased 79,028 to 86,072.

#0 zinc prices were between RMB 13,820-14,030/mt, RMB 200-420/mt above SHFE 1511 zinc contract prices. #1 zinc traded at RMB 13,620-13,650/mt. Smelters held back goods on falling zinc prices, widening price spread between Shuangyan and other brands. Nonetheless, imported goods were sold off due to large inflows. Traders sold proactively, and downstream buyers purchased as needed, improving overall transactions. #0 zinc prices were RMB 13,620-13,650/mt in the afternoon. As SHFE zinc prices plunged at the end of trading, overall transactions muted.

LME zinc prices surged initially then fell back last week, meeting pressure from the 10-day moving average. Will LME zinc prices soar this week? SMM surveyed over 30 market players to find that 63% are neutral, seeing LME zinc prices move between USD 1,620-1,680/mt and SHFE 1512 zinc contract prices hovering between RMB 13,400-13,800/mt. Total positions on LME zinc increased for two straight days but decreased later the week, meaning investors lack confidence toward the market. Positions on SHFE zinc were also down. Investors are expected to leave the market ahead of China’s National Day holiday. LME zinc prices will meet resistance from the 10-day moving average.

27% are bearish, believing LME zinc prices will drop to USD 1,600/mt, and SHFE 1512 zinc contract prices will fall toward RMB 13000/mt. Profit at China’s large industrials was disappointing in August, and posted its largest decline to date. Concerns over China’s growth will weigh on commodity prices. Downstream buying interest will be weak not that they had built stocks last week. When combined with inventory liquidation at the end of Q3, zinc prices will not find any support. Besides, high zinc inventories both at home and abroad, coupled with continuous inflows of imported zinc, should drag down zinc prices.

10% are bullish, expecting LME zinc prices to rise to RMB 1,700/mt, and SHFE 1512 zinc contract prices to point toward RMB 14,000/mt. Continuous recovery in the US and stabilizing European economy will compound to boost market sentiment. Meanwhile, crude oil inventories in the US continued to fall, bolstering commodity and base metals. Sluggish economic indicators from China are also expected to precipitate additional stimulus measures. In the meantime, continuously falling zinc prices have forced smelters to hold back goods, leading to supply tightness of some brands, which will push up spot premiums and underpin zinc prices.