Share
ZINC TODAY – Fresh 2016 price high before year-end remains on the cards
8th December, 2016 10:09 AM by Boris Mikanikrezai
8th December, 2016 10:09 AM by Boris Mikanikrezai
|
Column 1 |
Column 2 |
Column 3 |
Column 4 |
| 0 |
|
Column 1 |
| 0 |
 |
|
 Medium Term: |
 Long Term: |
|
|
Resistances:R1 |
2,809 50% Fibo of 2006-2008 downtrendR2 |
2,985 2016 high (November)R3 |
3,227 61.8% Fibo of 2006-2008 downtrend |
|
Support:100 |
2,38650 |
2,49220 |
2,681150 |
2,267 |
|
Support:S1 |
2,681 20 DMAS2 |
2,386 100 DMAS3 |
1,737 March lowS4 |
1,445 2016 low |
|
Column 1 |
| 0 |
Legend:DMA = Daily moving average. MMA = Monthly moving average.
UTL = Uptrend line
RSI = Relative strength index. It helps us to detect whether a metal is oversold (RSI below 30) or overbought (RSI above 70).
The momentum index allows us to determine whether momentum is positive or negative. We use a parameter equal to 10, corresponding to momentum over the past 10 days. Above 0, momentum is positive; below 0, momentum is negative.
ADX – average directional index. This allows us to gauge the strength of the current trend (above 20, the trend is strong; below 20, the trend is weak).
The combination of momentum and ADX allows us to determine the current trend (up or down) and its strength (strong or weak).
|
| Technical CommentMomentum is slightly in negative territory and ADX is above 20, pointing to a possible strong downtrend.Analysis
- Zinc appears to remain supported by its upwardly sloping 20 DMA, which points to bright sentiment and suggests that the year-to-date uptrend is set to last for longer.
- Looking at our monthly chart, zinc ended October firmly above the DTL drawn from the 2010 high, suggesting a bullish breakout pattern. More importantly, zinc briefly moved above the 50% Fibo of the 2006-2008 downtrend in November, setting it up for all-time highs in the coming months, perhaps.
- On the upside, zinc’s main challenge is to take out the 50% and 61.8% Fibos of the 2006-2008 downtrend. On the downside, we will pay close attention to the 20 DMA to detect any weakening in sentiment. A break below it would push the metal lower first toward the 50 DMA and then the 100 DMA.
Macro driversLME zinc is under renewed selling pressure although it remains up in the week to date. Investors seems to be taking profit across base metals despite improving risk sentiment (equities continue to rally strongly) and encouraging Chinese macro data released earlier this morning. The loosening of nearby spreads – c/3s is at $19.25 contango from $14c last week – suggests long liquidation.The recent selling pressure in zinc seems to reflect expectations of a possible supply response from Glencore to higher prices. Although Glencore CEO Ivan Glasenberg last week remained silent on the specific timing of restarts of its shuttered zinc mines, he acknowledged that zinc was becoming a “scarce commodity” and that tightness was starting to spread to the entire supply chain. Conservative traders have subsequently taken profit off the table.But Glencore seems to be committed to keeping the global zinc market tight. It may therefore adopt a very cautious stance on bringing shuttered capacity back on stream. Speculative bullishness should remain intact, underpinning zinc’s uptrend.Forward selling from hedging activity has become significant since November as the deep tightening of further-dated spreads shows – 3m-5y moved from a backwardation of $117.25 at the start of last month to $448 as of December 7. Although companies usually do not disclose their hedging activity, Nyrstar has publicly announced a new zinc price hedging strategy and may maintain it to contain downside risk. We suspect many companies will consider hedging at current price levels.While the tightness in the global concentrate market continues to intensify, as the further fall in spot TCs for zinc concentrate attests, it has not yet shown up in the global refined market, as the increase in China’s refined zinc production in October suggests.Flows in visible inventories (LME & SHFE):Although visible stocks moved lower in November, in the year to date they remain very elevated – they may continue to act as a cushion against a tighter refined market.
- LME stocks – at 438,975 tonnes as of December 7 – have edged 3,025 tonnes or 0.7% lower so far this month after falling 8,725 tonnes or 2% in November. In the year to date, stocks are down 23,725 tonnes or 5.1%.
- SHFE stocks – at 152,731 tonnes as of December 2 – were broadly unchanged in the past week after falling 11,714 tonnes or 7% in November. In the year to date, stocks are down 47,697 tonnes or 24%.
Supply/demand balance:The refined zinc market was in deficit of 19,900 tonnes in September, the ILZSG said, bringing the year-to-date deficit to 251,000 tonnes compared with a surplus of 250,000 tonnes a year previously.ConclusionWe are willing to maintain our constructive stance over the very short term because the year-to-date uptrend is set to continue for longer, which should result in fresh 2016 highs before the end of the year. Still, as we have indicated previously, a firm break below the 20 DMA would force us to turn neutral because profit-taking could prove sizeable, especially given the overstretched spec positioning and the possible return to risk aversion. We remain constructive over the short term but neutral over the medium and long terms. As we wrote in our latest spotlight, despite the zinc market’s healthy fundamentals, we think prices accurately reflect the forward tightness. Additional price increases may generate a supply response, which is evident already in the significant surge in forward selling, curbing the rebalancing process and triggering profit-taking. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.[/table][/table]
(20min delay)