Zinc Prices Decline in LME and MCX Amid Supply Concerns

Key Takeaways

• The LME zinc market is experiencing downward pressure, while SHFE shows slight recovery.
• An expected deficit in zinc supply indicates potential upward pressure on prices in the medium term.

Zinc Prices:

• LME: As of yesterday, LME zinc opened at $3,087/ton, hitting a high of $3,092/ton, and low of $2,992/ton, closing down at $3,052/ton, a decrease of $42.5/ton, or 1.37%. Today, LME Zinc trading commenced at $3,053.5/ton.
• SHFE: As of yesterday, the most-traded SHFE zinc 2411 contract opened at 24,800 yuan/ton, hitting a high of 25,150 yuan/ton, low of 24,780 yuan/ton and finally closing up at 25,090 yuan/ton, an increase of 135 yuan/ton, or 0.54%. Today, SHFE Zinc trading commenced at 25,300 yuan/ton.
• MCX: As of yesterday, MCX Zinc prices opened at Rs 282.25/kg, reached the highest level of Rs282.65/kg, the lowest level at Rs 277.15/kg and finally closed down at Rs 281.60/kg, a decrease of 1.80 or 0.64%. Today, MCX Zinc trading commenced at Rs 282.05/kg.

Zinc Supply & Demand:

• LME Opening Stock - 239300 | Live Warrants - 205025 | Cancelled Warrants - 34275
• LME: Trading volume decreased to 12,804 lots, and open interest decreased by 2,523 lots to 260,000 lots. Overnight, LME zinc recorded a bearish candlestick, with the middle Bollinger Band providing support. LME zinc inventory decreased by 1,325 tons to 239,300 tons.
• SHFE: Trading volume decreased to 69,930 lots, and open interest decreased by 543 lots to 110,000 lots. Overnight, SHFE zinc recorded a bullish candlestick, with the 10-day moving average above forming resistance. The high futures market prices continued to suppress downstream consumption, yet the tight ore situation remained unchanged, with the supply side still supporting zinc prices. Additionally, the State Council Information Office will hold a press conference on Thursday regarding the promotion of stable and healthy development of the real estate market, which may stir market sentiment again. SHFE zinc opened lower and then moved upward throughout, with attention on the subsequent macro trend.
• MCX: Zinc settled down by 0.64% at Rs 281.6 as China’s latest stimulus announcements failed to meet market expectations, leaving investors uncertain about the size of the support package. The government pledged to increase borrowing to aid the property market and support low-income individuals but did not provide specific details on the scale of the fiscal stimulus, leading to market disappointment. Additionally, metals were pressured by a stronger U.S. dollar amid reduced expectations of aggressive rate cuts by the Federal Reserve in the coming months.
• The global zinc market faces a significant supply deficit in 2024, as a raw material shortage is expected to force smelters to cut refined metal production. The International Lead and Zinc Study Group (ILZSG) revised its forecast from a previously expected surplus of 56,000 tons to a deficit of 164,000 tons for 2024. Chinese demand is expected to rise by only 0.7%, reflecting the struggles in the country's property sector. Despite this, global mined zinc production is projected to increase by 6.6% in 2024, largely due to new production in Russia.

Zinc News

• The US dollar index fluctuated at highs, exerting continuous pressure, combined with the market having largely digested China's previous stimulus policy, poor macro sentiment dragged LME zinc's focus further down.
• Zinc prices have been fluctuating in a range for more than two weeks now. The Zinc Futures contract on the Multi Commodity Exchange (MCX) has been trading in a range of Rs 274-Rs 292 per kg for more than two weeks now. Within this range, the price has been coming down now. The contract is currently trading at Rs 283 per kg. MCX Zinc Futures contract to reverse higher from the Rs 275-Rs 270 support zone and rise back to Rs 290-Rs 295.
• Korea Zinc today issued a statement following the end of MBK-Young Poong’s tender offer for Korea Zinc’s shares. MBK-Young Poong revealed through a regulatory filing that they have secured a 5.34% stake, falling short of their minimum target of 7%.

Expert Opinion

• The zinc market is under long liquidation as open interest dropped by 14.97% to 2,278 contracts while prices fell by Rs 1.8. Zinc is now finding support at Rs 278.4, with a potential test of Rs 275 levels if breached.
• On the upside, resistance is expected at Rs 283.9, and a move above could see prices testing Rs 286. This overall trend reflects market uncertainty and supply constraints weighing on zinc prices.