This week, zinc prices renewed the lows of early November. The bears took profits near the level of 2750 and as a result we might see the rebound of the price. The price might rise up to the 2930–2980 range, but then it will probably fall to the recent lows. The current rise in zinc prices is caused by technical factors. However, from the fundamental point of view, the situation remains negative.
Zinc prices remain low, both on London Metal Exchange (LME) and in Europe. Decrease in metal prices indicates a decline in consumption. Zinc prices in China fell below 22,000 yuan per tonne, and market sentiment remains pessimistic. It is reinforced by low production of metal processing plants. Warehouse stocks of zinc in China have declined, but the rate of depletion is slowing down.
According to the International Lead and Zinc Study Group (ILZSG), global refined zinc production fell by 4.1% last year to the 2009 lows. However, this year it might change due to a sharp rise in the annual benchmark smelter processing fee that plants earn for producing the metal. In 2023, the fee is $274 per ton. This figure was higher only in 2020.
The mismatch between zinc mine and smelter production has facilitated the accumulation of zinc concentrate and caused a rise in processing prices in Chinese markets. Thus, refined metal production could rise this year. According to Shanghai Metal Markets, China's refined zinc production increased by 6.6% during the first two months of 2023. This positive trend is also relevant for Europe.
Growth in production amid weak demand will put pressure on zinc prices. Therefore, opening of short positions is recommended at the price level above 2900. The target is a rebound to the local lows at the level of 2750.
The following trading strategy can be suggested:
Sell zinc in the range of 2900–2930. Take profit — 2750. Stop loss — 2980.
This content is for informational purposes only and is not intended to be investing advice.
