The official three-month LME zinc contract settled at $3,085/mt on May 18, the highest this year. The contract has gained around 60pc after jumping by $1,176/mt since May 2020. Scrap price direction is highly dependent on how LME moves. Market experts shared with Davis Index their outlook for zinc LME levels, which could help market participants analyse price directions.
Zinc was late to join the base metals’ rally while copper and aluminium had already peaked a few weeks ago. Several reasons have buoyed base metal prices, including supply constraints amid strong demand from China. Major economies are recovering from the lows of 2020 which is pushing demand higher. Vaccine roll-outs have boosted economic recovery
Sugandha Sachdeva, VP- Commodity & Currency Research of Religare Broking, expects a bout of profit booking after Zinc’s sharp advance as credit growth slows down in China. There is also growing sense of unease due to mounting inflation, which can push the US Federal Reserve to hike rates sooner than expected and taper its bond-buying program. However, the broad trend remains positive for zinc and prices may reclaim their strength.
Immediate support for prices can be seen at $2,780/mt followed by the next key support pegged at $2,550/mt. On the higher side, one can expect prices to surge till $3,200/mt initially, whereas $3,550/mt could be seen as the next trajectory from a medium-term perspective.
For Indian metal exchanges, Yash Sawant, Research Associate at Angel Broking, expects zinc prices to trade lower towards Rs215/kg in a month’s time, currently hovering near Rs233/kg. The argument that supports this outlook is that China’s move towards stabilizing the soaring commodity prices coupled with expectation of further monetary policy tightening by the People’s Bank of China might be a headwind for the industrial metals.
What pushed zinc higher?
There are concerns about major base metal producers, Peru and Chile, likely to raise taxes on mining companies that may hamper supply. Moreover, prices are treading higher as smelters in China’s Yunnan province, a major refined zinc producing region, are cutting output due to a reduction in power supply, which may limit the refined zinc output, shared
Stern environmental restriction imposed by Chinese officials to keep the pollution levels under control has hit their industrial segment, which will impact production activities in China, said Sawant.
As manufacturing activities pick up globally and demand for electric vehicles rises, zinc will witness higher demand from the steel and the chemical industry. Recent infrastructure stimulus package unveiled by the Biden administration in the US is also a positive trigger for the metal’s demand in the construction sector, said Sachdeva.