Zinc: Done or Setting Up For a New Run?

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After the big run that zinc has had this year, prices are now experiencing a correction in the last quarter. This is normal behavior since investors start taking profits after prices have risen significantly. The question: Is this just a pause before another rise or is this end of the bull move?

Zinc 3M LME since 2013

Zinc 3-Month LME since 2013. Source: MetalMiner

It wouldn’t be smart to try to predict the outcome as we’ll have to see how zinc keeps performing to determine that. However, at this point buyers should stay conservative, since zinc doesn’t look weak yet.

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The fundamentals remain strong and its supply/demand balance keeps shrinking for the 4th consecutive year. There is no question that the market is tightening and the question of whether we’ll have a deficit sooner or later is not that relevant. The point is, fundamentals support the price action and now it all comes down to investors’ perceptions.

So far, we see this pause as a constructive move. There hasn’t been significant selling off and, during the last few weeks, we are seeing strong buying, which is keeping prices from falling further down. This is very constructive and shows that there is still an appetite for the metal in the marketplace. For this reason, it wouldn’t be a surprise us to see prices rising again at some point.

On the other hand, despite the strong price action and fundamentals, zinc is not in a bullish environment. Commodities remain in bearish mode, now at their lowest levels in 4 years. Meanwhile, the US dollar remains very strong. This is obviously not the ideal environment for zinc prices to rise and, zinc potential might be limited until commodities turn up.

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