Zinc Prices Surge Amid Supply Disruptions and Economic Stimulus from China

Key Takeaways

• Zinc Prices Surge: Zinc prices increased significantly across global markets (LME, SHFE, and MCX) due to supply disruptions and strong demand from China.
• China’s Economic Impact: China's recent economic stimulus, including interest rate cuts, boosted the demand outlook for zinc as the country remains a key consumer.
• Market Deficit Forecast: The global zinc market is expected to face a 164,000-ton deficit in 2024, reversing previous expectations of a surplus, putting upward pressure on prices.
• Continued Price Volatility: Zinc prices are likely to remain volatile due to ongoing supply disruptions, economic policies, and market pressures.

Zinc Prices

• LME: As of yesterday, LME zinc opened at $3,063/ton, hitting a high of $3,143/ton, and finally closing up at $3,142.5/ton, an increase of $81/ton or 2.65%. Today, LME Zinc trading commenced at 3,147.5/ton.
• SHFE: As of yesterday, the most-traded SHFE zinc 2412 contract opened at 25,120 yuan/ton, hitting a high of 25,215 yuan/ton and a low of 25,005 yuan/ton, finally closing up at 25,125 yuan/ton, an increase of 205 yuan/ton or 0.82%. Today, SHFE Zinc trading commenced at 25,025 yuan/ton.
• MCX: As of yesterday, MCX Zinc prices opened at Rs 285.75/kg, reached the highest level of Rs290.30/kg, the lowest level at Rs 283.10/kg and finally closed down at Rs 289.60/kg, an increase of 5.75 or 2.03%. Today, MCX Zinc trading commenced at Rs 290.15/kg.

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Zinc Supply & Demand

• LME Opening Stock - 234625 | Live Warrants - 209125 | Cancelled Warrants - 25500
• LME: Trading volume decreased to 9,268 lots, and open interest increased by 1,542 lots to 254,000 lots. Overnight, LME zinc recorded a bullish candlestick, with the middle Bollinger Bands providing support below. Overnight, LME inventory decreased by 2,550 ton to 234,625 ton, a drop of 1.08%, continuing the reduction trend.
• SHFE: Trading volume decreased by 39,966 lots, and open interest increased by 2,301 lots to 95,376 lots. Overnight, SHFE zinc recorded a small bullish candlestick, with various moving averages providing support below. A domestic northern mine halted production, coupled with the upcoming seasonal off-season, increasing disturbances on the mining end. The expected limited upward space for TC provides support for the bottom of zinc prices.
• MCX: Zinc prices rose by 2.03% to settle at 289.6, driven by optimism over China's economic stimulus and supply concerns. The People's Bank of China (PBoC) slashed its one- and five-year loan prime rates to record lows, with the five-year rate reduced to 3.6%, potentially easing pressure on household mortgages and boosting home buying. This, combined with support for China’s equity markets and a potential cut in banks' reserve requirements, lifted the demand outlook for zinc, as China remains a key consumer of the metal. Additionally, China’s economic growth for the third quarter exceeded expectations, although it slowed to the weakest pace since Q1 2023.
• Better-than-expected retail sales, industrial production, and fixed asset investments in September also contributed to the positive sentiment for zinc demand. On the supply side, the global zinc market faces a significant deficit in 2024, as a raw material squeeze has led smelters to reduce refined metal production. The International Lead and Zinc Study Group (ILZSG) revised its outlook from a previously forecasted surplus of 56,000 tons to a 164,000-ton deficit. Meanwhile, China’s refined zinc production rose by over 2% month-on-month in September, though it was down 8% year-on-year, with smelters ramping up output after maintenance.

Zinc News

• Recently, a fire at the Century mine in Australia halted production and is expected to affect around 10,000 ton in metal content, increasing supply-side disturbances and causing zinc prices to fluctuate at highs.
• IMF projected global economic growth rates of 3.2% for this year and next, with downside risks becoming more significant; the US Fed's overnight reverse repo operations usage fell to its lowest since 2021.
• Zinc rises as China’s Central Bank cuts benchmark rates, boosting demand outlook.
• Zinc prices continue to fluctuate in a wide range. The Zinc Futures contract on the Multi Commodity Exchange (MCX) has been range bound between Rs 274 and Rs 292 for more than three weeks now. It is now poised near the upper end of this range. The contract is currently trading at Rs 290 per kg. MCX Zinc Futures contract can rise to Rs 310-Rs 320 on a break above Rs 294.

Expert Opinion

• The market is experiencing short covering, with open interest falling by 8.5% to settle at 1,852 contracts. Zinc has support at Rs 285.1, and if it breaks below this level, it could test Rs 280.5. On the upside, resistance is expected at 292.3, with a move above potentially pushing prices to test Rs 294.9.