Zinc prices to remain bearish on increasing mine supply

The entire base metal complex ended with losses last week. MCX zinc and aluminum both fell by more than 1 percent followed by a 0.7 percent downside in lead and nickel, while copper ended the week with minor losses of 0.3 percent.

Investors will now be looking forward to the China’s economic conference next week where tax cuts and fiscal stimulus measures would be discussed. Market would also be keenly watching development related to possible US China talk on trade conflict.

Zinc prices have witnessed a sharp correction since July on increased supply worries and slowing growth in China. Prices took support at USD 2300 on the back of physical market tightness and lower inventory level and triggered cash to 3-month spread touching the record of USD 125 per tonne last week. The contract remains in a backwardation since the last three month. Going forward, the scenario may tighten a bit due to falling inventory but current bearishness in zinc will remain for some more time.

At present, looking at the global demand supply, zinc still remain in a deficit of 305,000 tonnes during the Jan-Nov period of 2019 but the deficit is likely to narrow in 2019 as the world mine supply is expected to rise by 6.4 percent at 13.87 million tonnes in 2019. Glencore, the largest zinc producer is expected to restart its idled capacity and Vedanta is expected to commission its production at its Grasberg mine in South Africa.

The zinc demand will get a boost only if China takes more fiscal and monetary steps to support the economy else increasing mine supply in 2019 and lower demand from steel sector would mean continued downward pressure on Zinc prices. We expect MCX Zinc prices to trade lower towards Rs 170-175 levels with strong resistance around Rs 205-210 levels.

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