Short term
(1-3M):
Flat
Medium term
(3-6M):
Down
Long term
12M):
Flat
Resistances:
R1 2,190 200 DMA
R2 2,387 100 DMA 
R3 2,486 40 DMA
R4 2,564 20 DMA
R5 2,583 Oct 23 high
R6 2,728 Oct 2018 high
Support:
S1 2,564 20 DMA
S2 2,486 40 DMA
S3 2,459.50 Jan 22 high
S4 2,389 76.4% Fibo Mar-Sep rally
S5 2,356 Aug 10 low
S6 2,270 61.8% Fibo Mar-Sep rally
Stochastics:
Crossed lower in high ground
Legend:

BB - Bollinger band
DMA - daily moving average
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
  • Zinc prices appear comfortable while consolidating recent gains so far on Thursday November 12, with the London Metal Exchange three-month benchmark drifting back towards a series of chart highs around $2,600 per tonne.
  • Momentum indicators reflect the paused momentum - the stochastics have crossed lower in high ground and the RSI has rolled lower to stand at 70. 
  • We maintain our upside target of around $2,800 per tonne based on the bull flag formed over late October/early November. Still, scaled-up resistance is evident in a series of chart highs toward $2,728 per tonne from August-December 2018.
  • Support is seen from the 20 DMA at $2,564 per tonne, ahead of the 40 DMA at $2,486 per tonne. Below there is support at the 100 DMA at $2,381 per tonne. 
Macro drivers
LME zinc stocks at 221,075 tonnes on November 12 were up from 121,050 tonnes on July 20. A small increase in cancellations is supportive and ties in with improved sentiment in the physical market, although only 4.2% of stocks are booked for removal currently.

Longer-dated spreads have continued to tighten alongside recent price strength, which implies a strong element of forward selling - most likely from producers. The contango in the three-month/five-year spread narrowed to $42 per tonne from $70.75 per tonne on October 19.

Shanghai Futures Exchange zinc stocks totaled 60,874 tonnes in the week to November 6, a rise of 486 tonnes on the previous week.

Reflecting continued tightness in the zinc concentrate market, Fastmarkets’ latest assessment of the zinc spot concentrate treatment charge, cif China was $85-105 per tonne on October 30, down from $100-120 per tonne at the end of September. 

The recovery in the global automotive market continues - sales in China increased by 12.5% year on year in October, according to the latest figures from the China Association of Automobile Manufacturers (CAAM). As a result total vehicle sales across the first 10 months of the year at 19.7 million vehicles were down by only 4.7% from a year earlier. 

In the physical market, premiums were little changed in the week to November 10, although reports point to a modest improvement in activity.

Conclusion
Zinc appears to be consolidating comfortably, with pullbacks supported by underlying buying interest amid expectations of rebounding demand, particularly while infrastructure spending from China feeds through. We maintain our upside target around $2,800 per tonne, although the fact that large volumes of forward selling have featured into recent price strength implies producers are not overly bullish across the longer term.

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