Zinc prices rose sharply last Friday following Glencore‘s announcement it would cut its annual zinc production by a third. Lead, which is mined together with zinc, surged as well. Both price moves are quite relevant and might be pointing to further advances for the balance of the year.
First, lead prices went up 9% in only 2 days. Second, the metal broke short-term resistance and did it in very heavy volume. Heavy volume means that many contracts traded, confirming the strength of the move.
Considering the strength of the price action, and the fact that lead prices are oversold (prices have fallen for 5 consecutive months), it wouldn’t be uncommon to see lead prices continue moving up as the year ends. Longer-term, however, it will be difficult for prices to sustain that momentum in the face of weak Chinese demand.
Zinc Moves Up
Similarly, zinc rose almost 10% following the news. It also did it in a huge volume to break short-term resistance levels. Zinc could continue rising over the next few months as the metal has room to go up. Since its peak in May, the metal fell over 30%.
Not only zinc and lead, but the rest of base metals also surged Friday, underscoring their high correlation this year.
What This Means For Metal Buyers
Buyers should consider buying metal for the balance of the year to minimize potential price increases.
Longer-term, it’s too early to call a major bottom. Despite the supply cuts, these rallies could be short-lived, with investors soon returning to their view of weak demand in China. Glencore’s actions could cause prices to continue to rally but its lasting effect is unclear until other miners follow and demand improves.