Open Interest of LME Slumps, Weighing on LME Zinc Prices

SHANGHAI, Feb 22 (SMM) -  On the news front, Putin accused Western countries of attempting to provoke a global war to destroy Russia, and issued a nuclear warning to the West; Wang Yi, director of China's International Communication Office of the Central Committee, said that the relationship between Russia and China is "as solid as a rock” that will be able to withstand any challenges brought about by changes in the international situation, RIA Novosti reported; The US completed home sales in January recorded a decline in the 12th month in a row, and the housing prices posted the smallest increase year-on-year in 11 years.

Eyes shall be put on the release of US economic data today for more clues on the Fed's decision about rate hikes.

Overnight, LME zinc opened at $3,128.5/mt and closed down $33.5/mt or 1.07% at $3,106.5/mt. The trading volume was 5,779 lots, and open interest lost 23,526 lots to 196,000 lots.  LME inventory increased by 1,975 mt to 31,450 mt. The sudden concentration of capitals poses potential risks. 

The most-traded SHFE 2304 zinc contract opened at 23,565 yuan/mt overnight and fluctuated narrowly around 23,600 yuan/mt before closing at 23,520 yuan/mt, up 25 yuan/mt or 0.11%. The trading volume stood at 40,000 lots, and open interest gained 2,461 lots to 82,000 lots. 

According to the latest production costs, the declining zinc prices previously have dragged down the profits of zinc smelters to about 700 yuan/mt. As a result, smelters had been holding back from selling and intended to raise the prices. But when zinc prices rebounded yesterday, smelters became active in making shipment. The recovery of zinc prices was down to changes in capitals. On the fundamentals, the consumption recovery still remains to be seen amid expectations for sufficient supply in the first half of this year. Therefore, zinc prices are still predicted to fluctuate narrowly.