Short term: Up
Medium term: Flat
Long term: Flat
Resistances:
R1 $3,000 Psychological resistance level
R2 $3,114 20 DMA
R3 $3,230 200 DMA
R4 $3,595.50 recent high
R5 $3,780 Jul 2007 high
Support:
S1 $2,970 May 4 low
S2 $2,900 psychological support level
S3
$2,878 June 2017 low-2018 high
Stochastics:
Bearish
Legend:

BB – Bollinger band
Fibo – Fibonacci retracement level
HSL – horizontal support line
SL – support line
MACD – moving average convergence divergence
DTL – downtrend line
UTL – uptrend line
H&S – head-and-shoulder pattern
RSI – relative strength index

Analysis
  • The LME three-month zinc price traded as low as $2,981 per tonne on Wednesday June 20.
  • Despite ample selling momentum, sellers lack the conviction to take zinc below the May 4 low at $2,970 per tonne. Perhaps a short-term relief rally is looming. 
  • If support from June 20 holds, zinc may have a decent platform to form what looks like a potentially bullish double bottom. But to take advantage, fresh buying needs to emerge quickly. Judging by this morning’s trading, though, there are few buyers around.
  • LME zinc remains susceptible to selling; a fresh 2018 low is still on the cards. 

Macro drivers
The strong dollar index and generally risk-off sentiment continue to plague zinc; its rising LME and SHFE inventories have also weighed. SHFE stocks are recovering - there was fresh inflow of 6,841 tonnes in the week to June 15. At 96,957 tonnes, plenty of metal is available while consumers are well stocked and in no hurry to restock. The highly anticipated boost in second-quarter demand failed to materialise.

Chinese demand for zinc concentrate remains low while cash-strapped Chinese zinc smelters continually cut capacity utilization rates, perhaps until they see higher zinc prices, which seems unlikely in the near term. Lower demand has help ease the previous tightness and push treatment charges (TCs) to increase to their highest level in May. As well, Chinese apparent demand was limited after the arbitrage window shut - the import loss stood at $24.80 per tonne on June 11.

More metal has arrived in LME-listed warehouses in New Orleans this morning, with 1,525 tonnes easily offsetting 250 tonnes of outflow, listing LME stocks to 247,450 tonnes. Over-eager zinc bears continue to influence a ballooning backwardation in LME price spreads, betting prices will drop further. Its cash/three-month spread is in a backwardation of $42.00 per tonne.

Still, there is no sign of a dominant warrant holder to suggest that zinc is in tight hands. Instead, the metals booked removal remains at a low 8,925 tonnes. As well, the 236,450 tonnes of on-warrant metal suggest that there is plenty around for lending purposes.

LME zinc is also vulnerable on the speculative front even though its net long fund position (NLFP) rose 185 lots to 58,940 lots in the week to June 15. The fourth consecutive week of gains reflect rather bullish sentiment among specs but the recent price weakness could put downward pressure on zinc’s elevated NLFP.

Conclusion
The weekly zinc chart (shown) highlights why LME zinc is at a key juncture. A solid break below $2,985 per tonne could open a fresh trading range of lower prices. With no sign of strong buying momentum in 2018, downside pressure is winning for now.

Please click 
here for our zinc monthly spotlight.


All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.