When will the "Zhenghuo" stop?

Since the beginning of November 12, Shanghai Zinc has started a rapid decline. As of the 26th, the Shanghai Zinc Index has fallen by 18%. The depth of the decline and the pace of speed are difficult for investors to grasp. Panic spreads in the market. Where will this fall fall? Where is the reason behind the decline? This will be analyzed one by one below.

The fundamental driving force of the Shanghai Zinc bull market since July is excess liquidity, and the decline in prices when liquidity begins to contract is an inevitable result. On November 19, the People's Bank of China decided to increase the deposit reserve ratio of financial institutions by 0.5% from November 29, which was the fifth time in the year and the second time during the month. The deposit reserve ratio was raised, deposits were deposited by large financial institutions. The reserve ratio has reached 18%, setting a record high. The slowdown in the central bank's monetary net growth since June and the continued rise in the central bank’s interest rate show that China has indeed begun to tighten its currency.

The bottoming out of the dollar is also an important reason for the decline in Shanghai zinc prices. On November 4th, the US dollar rebounded strongly after reaching the lowest point of 75.63 points in the year. The main reason was that the euro debt crisis was a comeback. The 23-day military conflict between the DPRK and South Korea also increased investors' risk aversion, and the influx of safe haven funds. The U.S. dollar index was pushed up; at the same time, the U.S. third-quarter GDP correction announced on the 23rd was substantially raised to 2.5%, which would ease investors’ worries about the U.S. economic recovery outlook and would also ease the Fed’s efforts to implement quantitative easing monetary policy. .

In the face of a sudden collapse, how can we determine where the price will fall? Here we analyze this from three aspects.

The first is the deviation of the main price from the 20-day moving average. The so-called extreme polarity will not be reversed, and the price will not deviate too much from the moving average and will move closer to the moving average over a certain range. The 2010 Shanghai zinc main contract deviated from the 20-day moving average by 2010. The following characteristics can be seen: the maximum deviation from the decline is 17%; the three deviations from the 15% are rapid and then quickly return to normal. Fluctuation interval. Judging from the above statistical features, the current slump will reach a support of around 15% to 17% from the 20-day moving average. That means that Shanghai zinc's 1103 contract will be supported near the 16300 level this time.

Second, from a technical perspective, Shanghai zinc may stabilize in the important support position. Since the bull market in July, there have been two rising triangles in Shanghai and zinc. Each time after a breakthrough, there will be a wave of rising prices. Therefore, the boundary of these two triangles will also be an important support for Shanghai zinc. In September, the support triangle for the rising triangle was near 16,700 points, and the rising triangle for July was near 15,800 points.

Finally, the production of zinc smelters will be an important support for zinc prices. Although there have been cases where prices fell below 70% of the cost of production, it is extremely rare. As a result, zinc prices have fallen without serious deterioration of the fundamentals. To the cost of production will be a very safe price.

Since August 2010, the average price of zinc concentrates has been 12,150 yuan/t, the smelting cost of large-scale zinc smelters has averaged 6,000 yuan/t, and the average price of zinc smelting by-products since October 540 yuan/t, according to production. Zinc can be calculated by 1.6t**, and the income per Zn is 864 yuan/t. Therefore, the current cost of producing a t-zinc is about 12150+6000-864=17286 yuan. Given that zinc concentrate prices will also fall, the cost of producing zinc will further decline. The market generally believes that 15,000 yuan/t will be a critical point for zinc smelter production cuts. If the zinc price falls below 15,000 yuan, there is limited room for further decline in Shanghai zinc, and zinc will enter the long-term value investment area.