Commodity Trading Tips for Zinc by Kedia Commodity

Zinc on MCX settled up 1.72% at 189.3 on optimism about metals demand following strong economic data from top metals consumer China and the United States. Zinc’s fundamentals are strong and, while suspended capacity remains idle, the deficit is likely to draw down stocks of concentrates and refined metal. The fundamentals look more bullish – mine output shortages are leading to lower treatment charges, in turn causing some smelters to cut output in China. Growing demand will therefore require a greater drawdown in refined metal stocks. For now LME stocks are only drifting lower. Although there is idle mine capacity that can be reactivated to alleviate the supply deficit, there are few signs of this unfolding yet. LME stocks are at best merely drifting lower but there are large holders of nearby positions, with one entity holding 40-49% of the warrants and one entity holding equivalent sized ‘tom’ and cash positions. LME zinc prices appreciated by 60% in 2016, boosted by a significant drop in supplies after major miners shuttered some operations following years of weak prices. At the same time, demand for zinc heated up as China embarked on an infrastructure spending program. Looking to 2017, it is expected that zinc will continue to gain support from tightening market fundamentals, but at the back of traders’ minds is the possibility of mining restarts as the metal appreciates. While this is a concern, so far only smaller miners have indicated restarts could be coming. The world’s largest zinc miner, Glencore, whose zinc mining cutbacks have really driven this rally will be cautious about restarting idled production. Technically now Zinc is getting support at 185.7 and below same could see a test of 182.1 level, And resistance is now likely to be seen at 191.3, a move above could see prices testing 193.3.

Trading Ideas:

Zinc trading range for the day is 182.1-193.3.

Zinc gained on optimism about metals demand following strong economic data from China and the United States.

Zinc’s fundamentals are strong and, while suspended capacity remains idle, the deficit is likely to draw down stocks of concentrates and refined metal.

Growing demand will therefore require a greater drawdown in refined metal stocks.