If there is a rock star among industrial metals, it’s zinc.
The metal just rose 15% in only one month and it’s now hanging near a 4-year high. Zinc has been the only base metal able to fight this bearish commodity market that we have been in since 2011. While most metals in the group kept falling like dominoes, zinc has managed to hold its value well. We noticed this divergence just a year ago.
The metal’s fundamentals are mixed. Zinc is supposed to move into deficit but most analysts say that it will take some time until that deficit materializes. Demand is expected to remain robust and the impeding closure of of the world’s two biggest mines (Brunswick and Century) could create supply constraints.
Dollar Weakness Helps Zinc
The technical picture tells a more positive story. The market is not letting prices fall and it seems like zinc takes every chance it gets to move up. Recent weakness in the dollar drove zinc prices up (and most base metals), but the metal will soon meet resistance near $2,400 per metric ton.
If it wasn’t for the bearish commodity environment, we would be bullish on zinc. If zinc breaks above resistance levels, we would take that as a bullish signal and that would be encouraging for the industrial metals group as well. However, we believe that zinc is going to need a significant turnaround in commodity markets if it wants to continue on its way up. For now, it seems too early to call on that turnaround.
What This Means For Metal Buyers
Zinc remains the strongest base metal and zinc buyers should consider hedging some of their purchases. However, we don’t expect zinc prices to rise significantly until commodities turn up, especially while prices remain below $2,400/mt.