In the recent market, relative to the booming market for agricultural products, the base metals are generally in a relatively unfavorable situation. However, in recent days, the trend of zinc has shown a relatively strong trend and continued to hit a new high. This is still related to the weak environment caused by the weak dollar and quantitative easing. Compared to metals with higher prices such as copper and tin, the absolute price of zinc is still relatively low, and it is sufficiently flexible. Although the current price has a certain bubble relative to the fundamentals, in the context of continued liquidity expansion, there is still room for zinc prices to continue to rise.
Despite the domestic interest rate hike policy, the blow to metals and other species is relatively large in the short term, but because the current rate hike is expected to be more formal and unlikely to enter the interest rate hike cycle, the current overall market performance Still strong. More crucially, it is still returning to topics that have a longer-term impact on the market: The second edition of the quantitative easing policy of various countries is in full swing. In the current exchange rate war, central banks in various countries have devalued their currencies to reduce their debt burden and attract overseas capital inflows. The world is flooding, causing various funds to flow into financial markets. Even pensions, which have always been very cautious about investment styles, are involved in agricultural products. According to the current economic situation and the weak US employment data, this extremely loose monetary policy will remain relatively long, so there is reason to believe that there is room for further increase in risk assets including zinc. Recent Goldman Sachs, Macquarie, and RBS agencies have raised their base metal 2010 price expectations. At this year's LME annual meeting, participants’ expectations for the 2010 zinc price also reached US$2,428/t.
For the London market, the fundamentals of zinc are weaker than other metals. The long-term discount of the zinc market has remained at a stable position of US$30/tonne, and there is no other metal in inventory that has fallen noticeably and remains at a high level. The cancellation of warehouse receipts has experienced a significant increase in the conversion of Orleans warehouses and has been in decline since then.
The domestic pressure became more and more obvious. In September, the output reached a record high of 505,000 tons. The domestic zinc market performed well in June-August and the excess pressure eased. However, after entering August, the pressure on the domestic market is increasing. The main concern is the recovery of production after the domestic overhaul and the recovery of downstream operating rates.
According to the domestic market data, Shanghai zinc stocks have increased by about 46,000 tons for 4 consecutive weeks, and spot premiums have also expanded from the previous level of 400 yuan/ton to a new level. Shanghai zinc has discounted 500-800 yuan. Between RMB/ton, the pressure of surplus supply is gradually beginning to show.
Due to factors such as holiday deposits, the position of Shanghai Zinc has shrunk considerably. According to the previous high position of the zinc market, zinc itself as a fund-sensitive variety of positions still have room to expand. The Shaoguan smelter can be shut down to stimulate further release of positions. From a technical point of view, it is also a consolidation that has broken through for a long period of time, and it is easy to attract funds to intervene.
The liquidity injection brought about by the second edition of quantitative easing in the weaker US dollar and developed countries will drive the asset price to rise further. There is still room for further increase in the absolute value of zinc price in liquidity injection. Fundamentally, the zinc market is in a process of accumulation of supply pressure. Although the current impact on prices is weak, it can easily cause price fluctuations when the external environment changes. Therefore, the one side is an extremely loose liquidity environment, and the other is the cumulative supply pressure. Although the zinc market is expected to rise further, its volatility will also be higher than before.