SHANGHAI, Nov 2 (SMM) – The most traded SHFE zinc contract fell for the third consecutive week in the week ended November 2, after the US dollar hit multi-months highs and world equity markets tumbled earlier in the week.
The dollar index climbed to 97 on Wednesday, its highest since February 2017, lifted by US economic data and a corresponding rise in Treasury yields. Equities experienced a tough October amid renewed concern over rising interest rates and US-China trade relations, as well as concerns about slowing growth in corporate earnings. This grew risk-aversion sentiment among investors and weighed on base metals.
This week’s zinc market was also hurt by the news that New Century Resources has loaded its first zinc concentrate from the Queensland-based Century zinc restart onto the shipping vessel MV Wunma at Karumba Port, which would arrive in China. The news supported the expectation of a well-supplied zinc concentrate market.
SMM expects limited downside room in SHFE zinc prices November and December, in anticipation of limited growth in supplies of refined materials. Steady downstream demand would also put a floor under the falling market.
Despite growing concentrate supplies, domestic smelting capacity did not expand significantly this year. This, together with pressure from environmental restrictions, is expected to generate limited output addition of refined zinc, in spite of healthy profit margins.
Seaborne zinc is unlikely to take a toll on SHFE zinc as demand for delivery and long-term contracts gives domestic resources an upper hand over their seaborne rivals. Recent declines in LME inventories also helped LME zinc to outperform its SHFE counterpart and this left little arbitrage opportunities for importers
As most downstream consumers have completed rectification works, they are expected to maintain relatively stable operating levels despite tepid orders. Tax cuts and a governmental push in infrastructure are also set to provide some support.