Industrial metals are not having a successful session today, but among aluminum, copper and nickel, zinc (ZINC) contracts are seeing the biggest declines, trading nearly 1.4% lower. The market is pricing in continued weaker demand and sizable supply. Meanwhile, in China, zinc production grew by 7.2% in the first four months of 2023, according to data from the Shanghai Metal Market. Additionally, a stronger dollar is putting pressure on industrial metals. Tomorrow's catalyst for volatility could be the PBOC's decision on interest rates in China - insufficient stimulation of the economy could promote deeper declines.
- Zinc has fallen nearly 40% from local peaks in January, when the euphoria around the opening of China's economy was enormous. China is the world's largest consumer of zinc, and the industrial metal's prices are cyclical - correlated with the overall global economy. The raw material is losing mainly due to weak macro data from China;
- In May, LME data indicated an increase of 18,050 t in inventories, rising to the highest level since September 2022 near 63,500 t. In addition, zinc is weighed down by seasonality - construction activity tends to slow down in the summer. Demand for steel in the spring, in China, came in well below expectations. In addition, production is also expected to rise in Europe, where energy prices for steel mills have fallen significantly;
- In May, Citigroup expected an oversupply of 147,000 tons in the global zinc market this year; Reuters analysts in May estimated a surplus of 45,000 tons. Meanwhile, the International Lead and Zinc Study Group (ILZSG) believes the zinc market will have a slight oversupply of about 45,000 tons this year (versus a forecast of 150,000 tons in October). Demand in China is expected to grow 2.1%, below the estimated 3.1% y/y production growth;
- Production is also expected to increase in Europe, where energy prices for steel mills have fallen significantly. Possible rises may be supported by the unstable situation in Myanmar, where the suspension of mining is causing supply concerns, or the PBOC's decision to stimulate the economy more aggressive in China.
Start investing today or test a free demo
Create account Try a demo Download mobile app Download mobile appIn Q2 2023, zinc became a metal readily shorted by financial institutions - with the first preponderance of short positions since Q1 2020. The main reason for the positioning was the prospect of oversupply and the negative surprise of China's opening, which put additional pressure on contracts. Source: LME, Reuters
Looking at the ZINC chart, on the H4 interval, we see that the main short-term resistance in the form of the SMA100 (black line) has been overcome, and the average has turned from resistance into support, which is currently being tested. If there is a price rebound, we can expect another similar pattern of upward structure. Higher volatility may take place tomorrow, when the PBOC will decide on the annual interest rate. Source: xStation5
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
