Zinc prices have rather weakly won back the rise of almost all the commodity markets this week. Zinc buyers have only been able to push the prices slightly above the support level of 2,830, but when attempting to exceed 2,900, bears get active and prevent further price growth. In the short-term, zinc prices are likely to return to the level of 2,830.
The low liquidity level remains in the industrial metal markets due to the banking sector problems in the U.S. and Europe. At the same time, the expected growth of zinc bullion supply in China and generally weak demand put a fundamental pressure on the metal prices. Additionally, environmental pollution has disrupted the functioning of many industrial plants in Hebei and Tianjin. In the near future, it might limit zinc consumption.
As a rule, traders in the physical zinc market tend to purchase during the period of a steady rise in prices, not fall. In turn, declining ferrous metal prices negatively affected the number of new orders for zinc products. Thus, support for zinc prices from consumption in the refining and sales segment has also weakened. Although zinc consumption in China might be quite persistent in the near term, it is unlikely to be enough for a substantial rise in prices.
While demand in China’s zinc market does not show signs of a significant rise, the weakness in the metal prices will remain. The market’s rebound at the beginning of the week was not entirely without consequences for zinc (the price jumped 4% from the local low), so the RSI indicator moved away from the oversold zone and now it is not preventing the prices from returning to the support level of 2,830.
That said, it is better to fix short positions at 2,830, as this level repeatedly has become the point of zinc prices upward reversal.
The following trading strategy may be offered:
Sell zinc at the range of 2,890-2,900. Take profit – 2,830. Stop loss – 2,950.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.