SMM Zinc Market Daily Review (2015-8-24)

SHANGHAI, Aug. 25 (SMM) – SHFE 1510 zinc contract prices opened at RMB 14,715/mt last Friday evening, then leveled out at RMB 14,680/mt, and closed at RMB 14,685/mt, down RMB 140/mt or 0.94%. China’s A-share market plunged over 8%, depressing market sentiment. SHFE 1510 zinc contract prices dipped to RMB 14,210/mt on Monday, their lowest since May 3, 2013, and closed at RMB 14,325/mt, down RMB 500/mt or 3.37%. Trading volumes increased 60,134 to 170,374 lots, and total positions decreased 7,272 to 132,324. SHFE 1510 zinc contract prices will look for price floor.  

#0 zinc prices were between RMB 14,660-14,810/mt, RMB 250-400/mt above SHFE 1510 zinc contract prices. #1 zinc supply was tight, with prices of RMB 14,660-14,690/mt. Spot premiums of imported #0 zinc were RMB 0-100/mt against SHFE 1510 zinc contract prices. Traders sold proactively on growing inflows of imported zinc, while smelters were unwilling to sell, increasing price spread between domestic and imported zinc. Downstream buyers bought as needed. Traders held their quotes firm in the afternoon, with spot premiums of major brands up to RMB 300-400/mt, which traded between RMB 14,700-14,820/mt. Purchases were active, but overall trading was limited due to tight supply.

SMM surveyed over 30 market players to find that 50% are neutral toward zinc price trend this week, believing LME zinc prices will move between USD 1,710-1,770/mt, and SHFE 1510 zinc contract prices will hover between RMB 14,200-14,600/mt. Investors should remain cautious on plunging zinc prices on Monday and mixed macroeconomic news. When combined with tumbling stocks markets in China, commodity prices should be weighed down. Nonetheless, additional stimulus measures by Chinese government are expected, lending support to zinc prices. Total positions on SHFE zinc remained stable around 300,000, suggesting reticence of both longs and shorts.

40% are bearish, seeing LME zinc prices falling to USD 1,680-1,730/mt, and SHFE 1510 zinc contract prices down to RMB 1,680-1,730/mt. Concerns over economic crisis worldwide grew due to yuan’s depreciation. When combined with sluggish stocks markets, commodity prices should pull down. Besides, there is no technical support for LME zinc price. On the market fundamental side, a large inflow of imported zinc from rising SMM/LME zinc price ratio will push down domestic zinc prices, despite the fact that smelters have hold back goods and planned to cut output.

The 10% are bullish, seeing LME zinc prices rising to USD 1,800/mt, and SHFE 1510 zinc contract prices up to RMB 14,800-15,000/mt. Some mines hold onto their goods on falling zinc prices, weighing down TCs of domestic zinc concentrate. TCs of imported zinc concentrate fell to USD 205/dmt. Besides, a growing number of smelters cut output, leading to supply tightness. This grew spot premiums of #0 zinc against SHFE 1510 zinc contract prices to RMB 400/mt at one point. Downstream consumption is also expected to stabilize during late August and early September, bolstering zinc prices.