SHANGHAI, Jul 5 (SMM) – SHFE zinc prices tumbled earlier this week as the yuan rebounded and as imported zinc flowed into the market, SMM believes.
The SHFE zinc 1808 contract fell below the 22,000 yuan/mt level during the night session on Tuesday July 3 with massive sell-off by shorts. The contract then fell to a new low of 21,880 yuan/mt overnight.
The yuan rebounded after Tuesday’s uplifting remarks from the People’s Bank of China (PBOC), which accounted for the consecutive and sharp declines in SHFE zinc prices, SMM believes.
PBOC Governor Yi Gang said that China will "keep the yuan exchange rate basically stable at [a] reasonable and balanced level". His statement came after PBOC Deputy Governor Pan Gongsheng said at a conference in Hong Kong that policymakers remain "confident" that the yuan can be kept steady.
Offshore yuan stood at 6.64 per dollar overnight. This compares to Tuesday's 11-month low of 6.73.
As the yuan rallied, the import arbitrage window opened. The impact from the inflows of imported zinc on the market exacerbated in the low season.
The SHFE 1808 contract may consolidate if shorts cover their positions at 22,000 yuan/mt, a key psychological level for some shorts. It may extend its decline to test the support at the 21,500 yuan/mt level on the eve of Washington’s deadline to impose tariffs on Chinese imports if the yuan rises further.