Very short term (1M):  Flat
Short term (3M): Flat
Medium term (6M): Flat
Long term (12M): Flat

Resistances:
R1 $2,272 Jul high
R2 $2,300 psychological price 
R3 $2,459.50 2020 high
R4 $2,958 2019 high
R5 $3,780 Jul 2007 high

Support:
S1 $2,154 200 DMA
S2 $2,093 Jun high
S3

$2,083 20 DMA

Stochastics:
Bullish but a tad overbought

Legend:

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


Analysis       
  • The London Metal Exchange weekly zinc chart highlights last week’s bearish candlestick.
  • We can conclude that the metal did produce a technical rejection of the 2018 high DTL and this is now setting the price up for a deeper pullback in the coming weeks.
  • But in the short term, LME zinc price action is trying to find some support from the 50 WMA (see chart) and only a clean break below it will encourage more selling to emerge.
  • To nullify such a bearish setup, we will need strong buying pressure to emerge soon, preferably taking out the July high at $2,272 per tonne.
Macro drivers
LME zinc has had a decent run on the upside amid supply disruptions caused by the rising Covid-19 infection rates in key mining regions in South America. But much of the bullish supply disruption rhetoric has been priced in and the positive momentum is starting to look stretched. In fact, fresh restarts, including at Trevali’s Santander zinc mine in Peru, have dampened some of the bullish momentum seen since the start of July.

Fastmarkets' latest tally of lost production (including China) so far this year amounts to 744,000 tonnes, or 5.8% of global output. We think further mine disruptions will continue to influence LME zinc's price action and the spot treatment charges (TCs) paid to smelters. Fastmarkets’ assessment for the zinc spot concentrate TC, cif China was $160-180 per tonne on Friday June 26, up from $155-170 per tonne at the end of May - after Antamina shipments signalled the fresh availability of supply.

Other price supportive dynamics come from a friendlier speculative fund sentiment which continues to improve in the week to July 10. Gross longs added 715 lots, while gross shorts cut their bearish bets via 3,887 lots of short-covering. This has allowed LME zinc to join the rest of the base metals in having a net long fund position (NLFP) again. To maintain this status, additional buying interest needs to emerge.

Meanwhile, global zinc premiums were static across the board this week after a higher LME zinc price capped spot interest. No imports into China have been reported due to the closed arbitrage window and the general theme of low demand continues across Asia too.

Conclusion

The weak weekly close to July 17 is a technical concern but we will monitor the price action this week if there is follow-through selling pressure to convince us that more downside can be expected in the coming weeks. But in the event the LME zinc price is able to consolidate and start a rebuilding phase near the 50 WMA, a resumption of attempts to break above 2018 high DTL cannot be ruled out.

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