Zinc Breaks Through: Demand, Scarcity Create Bull Market

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Zinc has surged 12% in the past 2 months. The metal might reach a 3-year high soon, and that could finally allow Zinc prices to increase to new levels. As we commented 2 weeks ago, the metal was showing a bullish technical pattern and we would expect it to keep going up.

3M LME Zinc price since 2013

3M LME Zinc price since 2013

The fundamental picture supports a bullish attitude. Demand is expected to keep growing for the coming years, while the looming closure of major mines such as Century in Australia and Lisheen in Ireland next year due to mineral depletion, has most analysts predicting the deficit of this year only getting worse in the years to come. In the meantime, mining companies have been slow to open new zinc mines and LME stocks fell last week to a three-year low.

Commodities and, in particular, base metals have been in a falling market since the spring of 2011 and that’s also a reason why zinc hasn’t been able to turn its price around ever since. However, commodities made a key upward move this year and some industrial metals have already started to show some life. A further recovery in commodities and the metals sector will definitely help zinc on its way up.

3M LME Zinc Price on the LME

3M LME Zinc Price since 2011

We have seen many times that prices can move in the opposite direction of what the fundamental picture is saying. This is because many of these fundamentals are already discounted in the price and that is why, despite of having a fundamental opinion of the future, you should always wait for price actions before making purchasing decisions.

What This Means For Metal Buyers

Zinc is at its highest level since February 2013 and chances are that it breaks to a new three-year high. The fundamental and technical pictures are pointing to higher prices. If zinc manages to push onto new ground, we recommend buyers take their risk off the table and start taking long-term positions as prices will likely trend upward.

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