Bears take profits and exit, downside room for zinc prices limited [SMM Morning Meeting Minutes]

June 10 Zinc Morning Meeting Minutes

Futures Market: Overnight, LME zinc opened at $2,661/mt. At the start of trading, a tug-of-war between longs and shorts ensued, with longs gaining the upper hand and pushing prices to a high of $2,680/mt. Subsequently, bears launched a high-level attack, causing LME zinc to dive and its center to shift downwards to around $2,650/mt. Entering the night session, LME zinc accelerated its decline, reaching a low of $2,635.5/mt. The center rebounded towards the daily average line and oscillated, eventually closing down at $2,654/mt, down $8.5/mt or 0.32%. Trading volume decreased to 9,514 lots, while open interest increased by 464 lots to 217,000 lots. Overnight, the most-traded SHFE zinc 2507 contract opened at 21,945 yuan/mt. At the start of trading, the center of SHFE zinc slightly dipped to a low of 21,830 yuan/mt. Subsequently, as bears reduced their positions and exited the market, the center of SHFE zinc shifted upwards above the daily average line. It eventually closed down at 21,925 yuan/mt, down 200 yuan/mt or 0.9%. Trading volume decreased to 73,165 lots, while open interest decreased by 340 lots to 135,000 lots.

Macro: California files lawsuit against Trump administration for deploying troops to Los Angeles; the US may reach its debt ceiling between mid-August and the end of September; Trump unveils newborn savings plan, offering $1,000 per child; Iranian Foreign Ministry: Next round of Iran-US nuclear talks to be held on Sunday; First meeting of China-US economic and trade consultation mechanism continues today; General Administration of Customs: Total China-US trade value in the first five months decreased by 8.1%; CPI decreased by 0.2% MoM in May, PPI decreased by 0.4% MoM in May.

Spot Market:

Shanghai: As delivery approaches, the market continues to be bearish on subsequent premiums. Yesterday, the number of traders selling cargo increased, and spot quotes in Shanghai were adjusted downwards on a MoM basis. However, as the futures market maintained a fluctuating trend, downstream buying sentiment was not high, and overall spot trading performance was mediocre.

Guangdong: It offers a discount of 30 yuan/mt against spot cargo in Shanghai. Overall, there are currently many traders selling cargo in the Guangdong market, and the circulation of spot cargo is in a relatively loose state. However, downstream buying sentiment is relatively weak. Yesterday, spot premiums and discounts continued to decline.

Tianjin: It offers a discount of around 60 yuan/mt against the Shanghai market. Yesterday, the futures market pulled back slightly, and downstream procurement enthusiasm was low, with restocking mainly driven by rigid demand. There is a large amount of spot cargo in the Tianjin area, and social inventory continues to build up. Traders continuously lowered their premium quotes to sell cargo, resulting in poor overall market trading performance.

Ningbo: It offers a premium of 30 yuan/mt against spot cargo in Shanghai. The Ningbo market has ample cargo supply, and downstream players are bearish on subsequent premiums, continuing to adopt a wait-and-see attitude. Traders have successively lowered their premium quotes to sell cargo, but enterprises still take delivery based on orders, resulting in average spot trading performance.

Social Inventory: On June 9, LME zinc inventory decreased by 1,375 mt to 135,600 mt, a decrease of 1.00%. According to communication with SMM, as of Monday (June 9), the total zinc ingot inventory across seven locations tracked by SMM was 81,700 mt, an increase of 4,300 mt from June 3 and an increase of 2,400 mt from June 5, indicating an increase in domestic inventory.

Zinc Price Forecast: Overnight, LME zinc recorded a four-day losing streak, with the 40-day moving average turning into a resistance line. Dragged down by the weak performance of domestic zinc prices overnight, bears increased their positions, pushing the center of LME zinc prices lower. Attention should be paid to the outcome of the Sino-US trade negotiations in the future. Overnight, SHFE zinc recorded a bearish candlestick, with various moving averages above acting as resistance. Overnight, social inventory continued to build up, and the market sentiment was bearish. However, downstream buying power was strong at low prices, and bears showed signs of profit-taking, limiting the downside room for zinc prices.