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Analysis
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.
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