Zinc prices has surged as much as 25 percent in 2016 to the highest since July as miners supply less of the ore concentrate that’s refined to produce the metal, just as demand rebounds in China, the biggest user. It has emerged as the best performing metal this year.
Prices for the metal rose past Rs 135 per kg on June 3, their highest level in almost 10 months. This defies a slump in commodities from copper to iron ore and nickel, which have continued to fall over the past month amid concerns about growth in China.
The Chinese smelters that churn out more than 40 per cent of the world’s zinc may cut production for the first time in four years because they can’t get enough raw material, further lifting prices of one of this year’s strongest-performing commodities.
There are signs of tightness creeping into the London refined zinc market, with cash metal commanding a small $2.00 per tonne premium over three-month prices over the last couple of days. Last year too, Investors have been drawn in by a narrative of mine closures and a resulting tightening of the raw materials supply chain. There have been plenty of false scarce in the market but this is the year that it really seems to be happening.
Now the main question for investors is what to do with Zinc at this point of time? If we look at the peak of Rs 154 per kg during May 2015 to low of Rs 96.65 per kg during Jan 2016, Zinc right now is trading at 61.8 per cent of retracement level. Looking at the recent up-move, Zinc may find difficult in the short term to sustain at this high level and we may see correction till Rs 128-Rs 125 per kg. This correction is needed as most of the investors have not participated in this rally.
Since other metals were lagging, investors were reluctant to go long in Zinc future. The chart indicates positive sentiment and if it breaks below Rs 121/Kg then trend reversal can come. Rs.123-Rs.125 per kg is ideal zone for buying as previously too, Zinc has consolidated around this level plus this level is also 50 per cent retracement, taken from high of Rs 154 to low of Rs 96.65 per kg. Zinc is shining star among base metals and looking at fundamental as well as technical, it may continue to be so this year.
(The author is director at Tradebulls)