SMM Zinc Market Daily Review (2015-11-2)

SHANGHAI, Nov. 3 (SMM) – SHFE 1601 zinc contract prices opened at RMB 13,705/mt last Friday evening, and closed at RMB 13,705/mt. Trading volumes were 81,160 lots, and total positions increased 7,568 to 145,000. SHFE 1601 zinc contract prices opened at RMB 13,705/mt on Monday, then fluctuated between RMB 13,750-13,770/mt, and closed at RMB 13,765/mt, down RMB 90/mt. Trading volumes were down 24,000 to 160,000 lots. Total positions increased 11,538 to 149,000.

#0 zinc prices were between RMB 13,880-13,930/mt, RMB 90-140/mt above SHFE 1512 zinc contract prices. #1 zinc traded at RMB 13,740-13,750/mt. Imported zinc prices were RMB 150-0/mt below SHFE 1512 zinc contract prices. Some smelters held back goods, but supply was healthy, with spot premiums up slightly. Traded prices were between RMB 13,880-13,920/mt in the afternoon, with transactions quiet. Inflows of low-end imported zinc decreased, so purchases for #1 zinc grew. But #1 zinc smelters were reluctant to sell, in turn activating trading for some low-end #0 zinc. Downstream buyers purchased as needed.

SMM surveyed over 30 industry insiders to find that 43% are bearish toward zinc prices this week, expecting LME zinc prices to fall to USD 1,650/mt, and SHFE 1601 zinc contract prices to drop below RMB 13,280/mt. Caixin’s October PMI for China improved slightly, but remained below 50. China’s official PMI also fell short of market expectations, fueling market fears that China’s economy will weaken further, and depressing market sentiment. The Shanghai Composite Index failed to break through 3,400 on Monday, distressing market sentiment. On the fundamental front, only a small number of smelters cut output in November, and there are additional inflows of imported zinc. SMM reports the price gap between domestic and imported zinc widened over RMB 200/mt, with supplies healthy. SMM statistics show combined inventories in Shanghai, Tianjin and Guangdong grew to nearly 330,000 mt, and hit a new high since May last year as of last week. This should weigh on zinc prices. Besides, demand from galvanizers will shrink in November due to the low temperatures in North China.

40% see prices remain flat, with LME zinc prices expected to fluctuate between USD 1,670-1,740/mt and SHFE 1601 zinc contract prices expected to move between RMB 13,500-14,000/mt. The market will remain cautious ahead of the Fed’s interest rate decision at its next rate-setting meeting. Additional stimulus measures are expected from China to meet its 7% growth target. Both longs and shorts increased positions recently, but with selling pressure weaker. Zinc prices should be resistant to both increases and declines.

17% are bullish, seeing LME zinc prices returning to USD 1,750/mt, and SHFE 1601 zinc contract prices rising to RMB 14,000/mt. A string of economic indicators from the US were sluggish recently, constraining any further gains in the US dollar. Meanwhile, TCs of imported zinc concentrate were lowered by USD 7.5/dmt to USD 180-200/dmt in November, according to SMM data. This is expected to help improve market sentiment and support zinc prices.