SMM Zinc Market Daily Review (2015-5-18)

SHANGHAI, May 19 (SMM) – SHFE 1507 zinc contract prices opened at RMB 16,860/mt last Friday evening, then dropped to RMB 16,800/mt, and closed at RMB 16,785/mt, down RMB 115/mt or 0.68%. SHFE 1507 zinc contract prices opened at RMB 16,785/mt on Monday, then rebounded with LME zinc prices, and closed at RMB 16,875/mt, down RMB 25/mt or 0.15%. Trading volumes increased 1,998 to 123,096 lots, and total positions fell 10,586 to 106,782. SHFE 1507 zinc contract prices are expected to fall further this evening.

#0 zinc prices were between RMB 16,700-16,750/mt, RMB 130-100/mt below SHFE 1507 zinc contract prices. #1 zinc was traded between RMB 16,670-16,680/mt. SHFE 1507 zinc contract prices fluctuated between RMB 16,820-16,840/mt, with spot discounts widening from RMB 120-100/mt to RMB 130-110/mt. Smelters sold normally, but traders were unwilling to purchase due to the lack of profit. Downstream buying interest was weak, leaving overall transactions quiet. Huize #0 zinc prices were RMB 16,740-16,750/mt, RMB 100-90/mt below SHFE 1507 zinc contract prices. Shuangyan #0 zinc prices were RMB 16,730-16,740/mt, RMB 110-100/mt below SHFE 1507 zinc contract prices. Yuguang #0 zinc prices were RMB 16,720-16,730/mt, RMB 120-110/mt below SHFE 1507 zinc contract prices. Qilin and Qinxin #0 zinc prices were RMB 16,700-16,720/mt, with spot discounts of RMB 130-120/mt against SHFE 1507 zinc contract prices. Baohui and Bailing #0 zinc prices were RMB 16,660-16,670/mt, with spot discounts of RMB 170-160/mt against SHFE 1507 zinc contract prices. SMC and AZ #0 zinc prices were RMB 16,670-16,680/mt, with spot discounts of RMB 160-150/mt against SHFE 1507 zinc contract prices. SHFE 1507 zinc contract prices edged up to RMB 16,900/mt in the afternoon, with spot discounts between RMB 140-110/mt, and trading muted.
 

LME zinc prices fell below USD 2,300/mt last week. Will LME zinc stop falling this week? SMM surveyed 30 market players to find that 40% are bearish toward zinc prices, believing LME zinc prices will fall to USD 2,250/mt this week, and SHFE 1507 zinc contract prices will test support from RMB 16,500-16,600/mt. SHFE zinc prices had been boosted by LME zinc prices. LME zinc prices fell recently, but total positions surged 340,000, meaning growing shorts. Besides, combined inventories in Shanghai, Guangdong and Tianjin reached nearly 300,000 mt, up over 140,000 mt from early this year. China’s economic pressure, combined with slow demand, have kept spot zinc prices below SHFE 1507 zinc contract prices over two months.

37% are neutral, seeing LME zinc prices moving between USD 2,270-2,320/mt, and SHFE 1507 zinc contract prices fluctuating between RMB 16,700-17,050/mt. Despite an exodus of longs, the number of shorts entering the market is expected to be small. Meanwhile, the US dollar index weakened, and crude oil prices remained above USD 60/bbl, lending support to zinc prices. But backwardation on LME zinc decreased from USD 33/mt to USD 12/mt, weighing on zinc prices.

23% are bullish, thinking LME zinc prices will rebound to USD 2,330/mt, and SHFE 1507 zinc contract prices will rise to RMB 17,150/mt. LME zinc prices have dropped 6% to as low as USD 2,300/mt. When combined with support from crude oil prices, zinc prices should find some support.