SMM Zinc Market Daily Review (2015-10-26)

SHANGHAI, Oct. 27 (SMM) –SHFE 1512 zinc contract prices opened at RMB 14,215/mt last Friday evening, then fell to RMB 14,020/mt and closed at RMB 14,020/mt, up RMB 20/mt. Trading volumes were 165,000, and total positions increased 2,342 to 151,000. SHFE 1512 zinc contract prices opened at RMB 14,150/mt on Monday, and fell to RMB 14,100/mt. In the afternoon, SHFE 1512 zinc touched RMB 14,230/mt and closed at RMB 14,170/mt, up RMB 40/mt. Trading volumes were 327,000 lots. Total positions increased 5,206 to 154,000.

#0 zinc prices were between RMB 14,200-14,230/mt, RMB 100-130/mt above SHFE 1512 zinc contract prices. #1 zinc traded at RMB 14,010-14,030/mt. Imported zinc prices ranged from RMB 110/mt below to RMB 20/mt above SHFE 1512 zinc contract prices. Smelters sold normally, and supply of imported zinc was sufficient, with the price spread between domestic and imported zinc widening to RMB 200/mt. Spot premiums were RMB 60-100/mt against SHFE 1512 zinc contract prices, with traded prices between RMB 14,200-14,300/mt. Some traders purchased at lower premiums, and most downstream buyers stayed on the sidelines.

An SMM survey of over 30 industry insiders finds that 50% are bearish toward zinc prices this week, expecting LME zinc prices to fall to USD 1,700/mt, and SHFE 1512 zinc contract prices to fall below RMB 14,000/mt. Nyrstar may be unable to pay off debt due next year, depressing market sentiment. SMM understands domestic zinc concentrate TCs tend to rise, meaning sufficient supply. This should weigh on zinc prices in the near term. Besides, smelters sell proactively as operating rates remain high. Combined inventories in Shanghai, Tianjin and Guangdong grew over 300,000 mt over the last month.

40% are neutral, seeing LME zinc prices fluctuate between USD 1,730-1,780/mt, and SHFE 1512 zinc contract prices hover between RMB 14,000-14,500/mt. Despite market expectations of additional stimulus measures from China and improvement in China’s stock markets, the US dollar surged to 97. Meanwhile, major economic indicators from the US, including new home sales in September and durable goods orders are promising, which will bolster the US dollar. On the technical front, LME and SHFE zinc prices are well supported by moving averages.

10% are bullish, believing LME zinc prices will return to USD 1,800/mt, and SHFE 1512 zinc contract prices will rebound to RMB 14,300/mt. The People’s Bank of China (PBOC) lowered interest rate and reserve requirement ratio over the weekend. The market is expecting further stimulus measures from China at the fifth plenary session of the 18th CPC Central Committee. Import profit decreased recently on falling SMM/LME zinc price ratio, leading to lower TCs of imported zinc concentrate, which will shore up zinc prices.