Ample supplies in the market shrank zinc spot premiums in Shanghai on Monday July 23, we believed.
Most spot offers were heard at premiums of 260-290 yuan/mt against the SHFE August contract in the morning. Premiums fell to 180-200 yuan/mt in the afternoon.
As the contract closed higher for four consecutive trading days, smelters became willing to let their cargoes go and accepted some retail orders. Resources from long-term contracts also entered the market after some traders completed their long-term contracts by July 22.
Meanwhile, imports in the market were limited as earlier supplies were depleted. SMC zinc from Australia and KZ zinc from South Korea were mostly offered at 170-180 yuan/mt against the August contract in the morning, 80-100 yuan/mt lower than 0# domestic materials. The spread narrowed to 0-20 yuan/mt in the afternoon.
We expect spot premiums to face downward pressure in anticipation of import inflows after the import arbitrage window opened in the past fortnight. Downstream consumers typically favoured cheaper, imported resources.
Trades in the market were thin due to poor purchasing interest from traders and downstream consumers. Downstream buyers had stockpiled previously when the market declined, while decreasing spot premiums kept traders on the sidelines. A seasonal lull also lowered orders received downstream.
Some traders were heard purchasing at low premiums in the afternoon, which may slow the decline of premiums.