What’s up — or should we say, down — with zinc?
Together with other base metals, zinc has experienced a downtrend during this past week, reaching a seven-month low on Wednesday. Since then, it has recovered slightly up to $2,540/metric ton.
Zinc is moving together with commodities and industrial metals, both of which have experienced a weaker start to June. These weaknesses began in the beginning of 2017, as zinc prices failed to reach new highs, turning into a sideways market.
Other metals, such as tin and lead, have also experienced lower prices during the first week of June, which could be a signal of a general trend reversal. We do not believe zinc will succeed in surpassing its previous $3,000/mt upper limit.
In fact, zinc could be at the start of a downtrend.
The previous uptrend came as a result of a boosted economy in China, as mentioned in a previous article, and has driven the market until February.
As reported previously, the zinc supply deficit is not the cause of the market’s continued uptrend. London Metal Exchange (LME) zinc stocks are currently in deficit, while North American demand is anticipated to increase in the future due to a boost in the construction and infrastructure sectors by the Trump administration.
However, concerns regarding zinc supply and stronger demand are not enough, yet, to correct the slight downtrend that zinc has shown since this past February.
The Chinese economy, which is also a driver of the general sentiment in the metals market, is slowing down, compared to expectations for this year. The Caixin Manufacturing PMI in China fell again in May to 49.6, from its previous value of 50.3 in April, and also below the expected 50.1 for this month.
Even “superstar” zinc has shown similar behavior to other metals in the beginning of May. This month’s sharp drop has resulted in an opportunity to buy zinc, as its price has fallen close to support levels (something we discuss in detail in our forecast reports).