Zinc Surges Amid Short Covering as Market Anticipates US Inflation Data

Zinc prices experienced a moderate uptick, rising by 0.48% and reaching 208.6, fuelled by short-covering activities within the market. This movement coincided with a heightened focus from market participants on the impending release of US inflation data, which is eagerly awaited for the insights it may provide into potential adjustments in interest rates. However, amidst this upward trajectory, the zinc market is grappling with persistent challenges, primarily linked to production delays at Russia's Ozernoye mine. Operational setbacks at the mine, resulting from Western sanctions and a recent fire, have forced a delay in the commencement of zinc concentrate production, now projected for no earlier than the third quarter of 2024. A comprehensive ramp-up to full capacity is anticipated in 2025.

The sustainability of price rallies triggered by production cuts remains uncertain and is contingent upon a significant increase in zinc demand, coupled with a shift in market focus away from projected surpluses. Recent developments, such as Nyrstar's decision to suspend smelting operations at its Budel facility in the Netherlands due to elevated energy costs, further contribute to the complexity of the zinc market outlook. This suspension introduces additional variables that market participants must consider. Globally, the zinc supply for the year is estimated at approximately 14 million tons. Interestingly, the market's lack of concern about zinc supplies is evident in the persistent discount for cash over three-month zinc contracts on the London Metal Exchange (LME), a prevailing trend observed for the majority of the past nine months.

From a technical standpoint, the zinc market witnessed short covering, evidenced by a -5.39% decline in open interest, settling at 5005. Simultaneously, there was a marginal 1 rupee increase in prices. The current support level for zinc is situated at 205.5, with the potential for a test of 202.4 in case of a breach. On the upside, resistance is anticipated at 210.8, and a breakthrough could pave the way for testing 213.

The zinc market is navigating a complex landscape marked by short-term price movements influenced by factors such as short covering and imminent economic data releases. The industry contends with production challenges, geopolitical influences, and supply-side concerns that collectively contribute to the overall dynamics of zinc pricing. As market participants await key data points and developments, the future trajectory of zinc prices hinges on a delicate balance of global demand, supply chain disruptions, and macroeconomic trends. The evolution of these factors will play a pivotal role in shaping the zinc market's outlook in the coming months.