As it was stated in the previous forecast, the zinc price continued declining and failed to settle above the round mark of 3000. The financial markets are mostly positive today, but this is primarily a technical bounce up after the big drop at the end of last week. The fundamental picture on the zinc market remains moderately negative, so a new price decline might be soon expected.
Zinc production in China is projected to exceed 560,000 tons in March, as high profits encouraged smelters to increase output, which may lead to a supply surplus and put pressure on prices. At the same time, production growth is occurring despite power rationing in China's Yunnan Province (leading to production cuts of 8,000-9,000 tons of zinc) and maintenance shutdowns of the Huludao Zinc Industry and Gansu Baohui smelters in April.
On the demand side, industrial plants in northern China have returned to their normal operation following the lifting of environmental restrictions. There has been a rise in orders for infrastructure construction, although the pace of this increasing is still slow. In general, the industrial activity will remain at existing levels in the short term.
With Chinese demand for zinc still weak, market participants are in no hurry for active buying, even though zinc inventories at smelters remain low, and zinc ingot social inventory continued falling last week. Some proven evidence of a significant increase in demand is needed, as otherwise the price will continue falling.
After gaining a foothold below the level of 3000, the next target for zinc prices is the local lows of late November in the range of 2870-2880. The RSI indicator is moving downward but still far from the oversold zone, which means that the price decline is not over yet.
The following trading strategy can be suggested:
Sell zinc in the 2920-2930 range. Take profit 1 — 2870. Take profit 2 — 2880. Stop loss — 2980.
Traders may also use a Trailing stop instead of a fixed Stop loss at their convenience.
This content is for informational purposes only and is not intended to be investing advice.
