Zinc prices to garner support from lower inventories: Narnolia Financial Advisors
Precious metal prices saw a sell-off after the positive sentiment on an agreement over phase I trade deal between the US and China. Last week, Gold prices fell by more than 2.5 percent and Comex Silver prices revisiting $17/oz as the price fell 5.5 percent.
The base metal complex bounced back on the announcement. Aluminium ended the week with gains of 1 percent, while the two sisters metals and Nickel closed lower by 2 percent on lingering supply concerns.
Zinc prices have rallied by 9 percent in the past three months due to lower global inventories. LME zinc inventories have fallen from 65,000 tonnes to 53,000 tonnes in the last three months sitting near its lowest levels in the last two decades. It is due to this reason that LME zinc contracts are seeing tightness in the supply of Cash-3 months spreads.
Zinc has continued to remain in deficit this year despite expectations of a surplus as forecasted by the ILZSG. Moving forward into 2020, the industry body expects supply surplus of 192,000 tonnes on account of higher supply expectation from China, Indian and Mexico. It expects global zinc demand to rise only by 0.9 percent. But current lower inventories are supportive of Zinc prices in the near term.
The US-China trade deal remains the most important event to decide the course of future price moves. The deficit zinc market, lower inventory and any new stimulus from China will be a supporting factor for Zinc prices. We expect MCX Zinc prices to remain supportive at Rs 180, and on the up-side, prices can test Rs 205-210 levels. Currently, prices are trading at Rs 192 per kg.
(The author is Commodity Analyst at Narnolia Financial Advisors Ltd)
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