Short term
(1-3M):
Flat
Medium term
(3-6M):
Down
Long term
12M):
Flat
Resistances:
R1 2,240 200 DMA
R2 2,494 100 DMA 
R3 2,631 40 DMA
R4 2,728 Oct 2018 high
R5 2,729 20 DMA
R6 2,844 Nov 30 high
Support:
S1 2,729 20 DMA
S2 2,716 Nov 23 low
S3 2,631 40 DMA
S4 2,459.50 Jan 22 high
S5 2,389 76.4% Fibo Mar-Sep rally
S6 2,356 Aug 10 low
Stochastics:
Trending lower


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 continues to consolidate, with the London Metal Exchange three-month price testing support from the 20 DMA at $2,727 per tonne on Monday December 7.
  • Momentum indicators have rolled lower now. The stochastics are trending lower, as is the RSI, which at 57 stands in neutral ground.
  • Previous resistance at the October 2018 high of $2,728 per tonne could offer offer immediate support. This stands ahead of the 40 DMA at $2,630 per tonne, which coincides with the September 1 high of $2,583 per tonne. The 100 DMA stands below there at $2,494 per tonne. 
  • Above the November 30 high at $2,844 per tonne, resistance is seen at the April 2019 high at $2,958 per tonne.
Macro drivers
LME zinc stocks totaled 218,825 tonnes on December 7, up from 121,050 tonnes on July 20, following further modest inflows. A small increase in cancellations is supportive and ties in with improved sentiment in the physical market - although only 10.1% of stocks are currently booked for removal.

Longer-dated spreads imply recent price strength has prompted an increase in forward-selling. The 3-15 month spreads settled in a $15-per-tonne backwardation on November 30, switching from a contango of $4.50 per tonne on November 23.

Shanghai Futures Exchange zinc stocks totaled 55,510 tonnes in the week to December 4, a 736-tonne fall on the previous week.

Spot treatment charges (TCs) remain under pressure - they fell to a 27-month low in November, reflecting continued mine disruptions. Vedanta's Gamsberg zinc mine in South Africa remains suspended while rescue operations continue following a pit wall collapse on November 17.  

Fastmarkets' latest galvanized steel and tinplate market tracker highlights increasing activity by galvanized steel makers and is supportive for zinc demand.

In the physical market, premiums were little changed in the week to December 1.

The latest commitments of traders (COT) data showed bullish investors strengthened their exposure in the week to November 27, increasing the net length to a record of 52,757 lots. Positioning remains stretched in the short term, both in outright terms and based on our z-score analysis, which leaves the metal vulnerable to long profit-taking/short rebuilding.

Additionally, the International Lead Zinc Study Group (ILZSG) pegged the refined zinc market in a 437,100-tonne surplus in the first nine months of 2020. In contrast, reported stocks increased by only 196,600 tonnes over the same period, which implies 240,500 tonnes of metal moved into off-market storage. 

Conclusion
The limited nature of the current pullback reflects overall positive sentiment, although the small descending triangle potentially forming suggests room for a modest short-term pullback.

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