Zinc Prices Decline Amid Bearish Market Sentiment and Supply Deficits

Key Insights

• Price Movements: LME zinc decreased by 2.95%, closing at $3,047.5/mt, while SHFE and MCX zinc also saw declines of 0.55% and 1.69%, respectively.
• Inventory Trends: LME zinc inventory rose by 2.96%, reaching 268,625 mt, with cancelled warrants at their highest level since October 2017 (107,000 mt).
• Market Resistance: Zinc prices are facing resistance, with futures trading between Rs 270 and Rs 292 on MCX, indicating a sideways range.
• Production Outlook: China's zinc production rose 2% month-on-month in September, but declined 8% year-on-year. Production is expected to increase by 1% in October.
• Supply Deficit: Zinc had a 79,500 mt deficit in September, narrowing from the 85,000 mt deficit in August, with a year-to-date deficit of 8,000 mt.

Zinc Prices

• LME: As of yesterday, LME zinc opened at $3,140.5/mt, reaching a high of $3,168/mt and low of $3,022/mt, and finally closed down at $3,047.5/mt, a decrease of $92.5/mt or 2.95%. Today, LME Zinc trading commenced at 3,055/mt.
• SHFE: As of yesterday, the most-traded SHFE zinc 2501 contract opened at 25,245 yuan/mt, hitting a high of 25,325 yuan/mt and low of 25,145 yuan/mt, and finally closed down at 25,215 yuan/mt, a decrease of 140 yuan/mt or 0.55%. Today, SHFE Zinc trading commenced at 25,235 yuan/mt.
• MCX: As of yesterday, MCX Zinc prices opened at Rs 286.85/kg, reached the highest level of Rs 287.90, the lowest level at Rs 281.10/kg and finally closed down at Rs 282.80/kg, a decrease of 4.85 or 1.69%. Today, MCX Zinc trading commenced at Rs 283.45/kg.

Zinc Supply & Demand:

• LME Opening Stock - 268625 | Live Warrants - 160900 | Cancelled Warrants - 107725
• LME zinc showed a bearish candle, with resistance at the upper Bollinger Band and support from the 60-day moving average. Trading volume dropped to 95,219 lots, and inventory rose 2.96% to 268,625 mt.
• On SHFE, zinc also dropped, with resistance at the upper Bollinger Band and support at the 10-day moving average. Trading volume fell to 170,000 lots, and open interest decreased to 151,000 lots.
• On MCX, the zinc rally is slowing after Trafigura’s large withdrawal from LME warehouses. Zinc had a 79,500 mt deficit in September, narrowing from August's 85,000 mt, with a year-to-date deficit of 8,000 mt.
• China’s zinc production rose 2% month-on-month in September but fell 8% year-on-year. Production was expected to increase by 1% in October as smelters resumed operations.

Zinc News

• Zinc prices fell by 1.69% as a stronger dollar and expectations of a slower pace of U.S. interest rate cuts weighed on market sentiment.
• Zinc futures have been appreciating over the past couple of weeks. However, it now seems to be staring at a resistance. At a broader level, the chart shows that the price of zinc futures has been oscillating in a sideways range. The December contract is being held between Rs 270 and Rs 292.
• LME zinc cancelled warrants increased by another 49kt yesterday to surge to around 107kt, their highest level since October 2017.

Expert Opinion

• In experts’ opinion, Zinc witnessed long liquidation with a sharp 32.06% drop in open interest to 2,535 contracts. Prices find support at Rs 279.9, with further downside possible to Rs 277.1. Resistance is expected at Rs 286.7, and a breakout could lead to testing Rs 290.7. Zinc trading range for the day is 277.1-290.7.