SMM Zinc Market Daily Review (2015-9-21)

SHANGHAI, Sept. 22 (SMM) – SHFE 1511 zinc contract prices opened at RMB 14,200/mt last Friday evening, then plunged to as low as RMB 13,960/mt, their lowest since October 2011, and closed at RMB 14,015/mt, down RMB 295/mt or 2.06%. SHFE 1511 zinc contract prices dipped to as low as RMB 13,660/mt on Monday, their lowest since June 9, 2010. In the afternoon, SHFE 1511 zinc contract prices rallied with the entry of long buyers, and closed at RMB 13,685/mt, down RMB 695/mt or 4.83%. Trading volumes increased 223,612 to 340,758 lots, and total positions grew 39,404 to 174,888.

#0 zinc prices were between RMB 13,870-14,150/mt, RMB 200-480/mt above SHFE 1511 zinc contract prices. #1 zinc traded at RMB 13,800-13,820/mt. Premiums of imported zinc were RMB 70-150/mt. Smelters were unwilling to sell as zinc prices tumbled, widening spot premiums. Traders sold proactively, with downstream buyers buying at lows. Supplies fell sharply in the morning, with price spread expanding further and trading brisk. Traded prices were between RMB 13,890-14,180/mt in the afternoon, with supplies tight. Traders replenished stocks at lower prices, and downstream buyers buying interest was strong, with overall transactions improving. 

LME zinc prices tumbled below USD 1,700/mt on Monday. Will LME zinc prices stop falling this week? SMM surveyed over 30 market players to find that 23% are bullish, believing LME zinc prices will rise to USD 1,700-1,730, and SHFE 1511 zinc contract prices will climb to RMB 14,000-14,300/mt. Zinc prices will technically rebound due to overselling and mounting long momentum. Besides, investment in infrastructure construction is expected to grow in Q4, bolstering demand and zinc prices. Dip-buying increased due to improving end-user demand, boosting market confidence.

47% are neutral, seeing LME zinc prices hover between USD 1,650-1,700/mt, and SHFE 1511 zinc contract prices fluctuate between RMB 13,700/mt. The US dollar will stay high now that the Fed said an interest rate hike in the medium term is still likely. Operating rates at zinc smelters are expected to climb to 80% in September, but operating rates at galvanizers will also rise thanks to strengthening demand from infrastructure construction, leaving both upward and downward room for zinc prices limited.

The remaining 30% are bearish, expecting LME zinc prices to fall to USD 1,600/mt and SHFE 1511 zinc contract prices dip to RMB 13,200/mt. They think Chinese economy will unlikely turn around in the latter half of the year. The Fed also expressed its concerns over global economy, depressing market sentiment. In addition, Glencore will reportedly sell off zinc ingot to pay off debt, fueling market pessimism. Imported zinc inventories in China stay high, adding to supply and weighing on zinc prices.