Short term
Medium term
Long term
R1 2,294 20 DMA
R2 2,321 40 DMA
R3 2,355 Jul 9 low
R4 2,446 100 DMA
2,565 200 DMA
2,810 Feb 2019 high

S1 2,565 200 DMA
S2 2,446 100 DMA
S3 2,321 40 DMA
S4 2,283 Aug 2018 low
S5 2,294 20 DMA
2,206 Sep 2016 low
Crossed lower in high ground

BB – Bollinger band
DMA – daily moving average
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

  • The LME three-month zinc price is consolidating, finding support from the 55 DMA at $2,350 per tonne so far on Tuesday September 16. 
  • Momentum indicators have rolled lower - the stochastics have crossed lower, as has the RSI, which stands at 53. 
  • The 55 DMA is providing immediate support, below which stands the 40 and 20 DMAs at $2,321 and $2,294 per tonne respectively.  Further support is seen at the August 20 low of $2,223 and around $2,210 per tonne, where dip-buying featured in August-October 2016. 
  • Zinc need to vault the DTL formed from the June 28/July 30 high, which stands at $2,395 per tonne. Resistance is seen at the 100 DMA at $2,447 ahead of the June 26 high of $2,553 per tonne. The 200 DMA is at $2,565 per tonne.

Macro drivers
Equity prices have had a negative start so far on Tuesday, with risk aversion still heightened following an attack on Saudi Arabian oil facilities over the weekend. 

LME zinc stocks totaled 62,125 tonnes on Tuesday. The cash/three-month spread was most recently in a backwardation of $4 per tonne compared with a contango of $4 per tonne on September 12. But this is unlikely to increase the inflow of previously off-market stocks to the LME warehouse network - 13,350 tonnes have been delivered on-warrant so far in the second half of 2019 compared with 83,625 tonnes in the first half. Fresh cancellations are also supportive  - currently 42.9% of stocks are booked for removal. We maintain our view that spreads are set to become increasingly volatile while availability shrinks.

Zinc stocks in Shanghai Futures Exchange-listed warehouses totaled 76,625 tonnes on September 12, up from 56,320 tonnes late in May, which highlights a gradual rise in smelter utilization rates in China. China's National Bureau of Statistics (NBS) data shows domestic refined zinc production jumped by 17.4% year on year in July and it is set to remain strong in the coming months following the end of the traditional maintenance season.

In the physical market, zinc premiums in Northern Europe remained supported in the week to September 10 despite subdued spot business. Premiums in all other regions traded flat in the week to September 10.

The global automotive market continues to bear the brunt of the current economic slowdown. Light vehicle sales dropped by 5.9% year on year in January-August, according to LMC Automotive.

Global mine production remains on an upward trajectory. Additional capacity of about 1.24 million tonnes per year came online in 2018-2019 despite the headwinds facing miners in China. Fastmarkets’ assessment of zinc spot concentrate treatment charges (TCs) rose to $275-305 per tonne cif Asia-Pacific at the end of August from $265-290 per tonne in July. But disruptions have featured recently - mine operations at Newmont Goldcorp's Peñasquito mine have been suspended again following a blockade by the local community and industrial action continues at Sumitomo’s San Cristobal mine in Bolivia.

The International Lead & Zinc Study Group (ILZSG) pegged the refined market in a 10,900-tonne surplus in June, while the market recorded a 134,000-tonne deficit across the first half of 2019. The study group forecast that the refined zinc market will remain in a structural deficit for a fourth consecutive year in 2019 at 121,000 tonnes. 

The latest commitment of traders' report (COTR) showed net short exposure among LME investment funds widened by 1,542 lots in the week to September 6 to 3,235 lots; the 2,619-lot reduction in fund shorts partially negated the 1,033-lot reduction in gross longs. Fund positioning remains polarized, however, which points to further volatility in the short-to-medium term.

The current rebound has again stalled at DTL resistance from the June 28/July 30 high while macroeconomic uncertainties continue to overhang. Despite recent mine disruptions, the prospect of rising output by Chinese smelters continue to weigh although any positive development from forthcoming trade negotiations could see a resumption of positive momentum.

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

2,356.50 Jan 2019 low
2,356.50 Jan 2019 low