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Analysis
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.
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