ZINC TODAY – Struggling to clear $2,300 22nd August, 2016 11:02...

ZINC TODAY – Struggling to clear $2,300

22nd August, 2016 11:02 AM by James Moore

	Column 1	Column 2	Column 3	Column 4
0	Column 1 0 Short Term:	Medium Term:	Long Term:

	Resistances:R1	1767 Feb 9 peakR2	1877 Mar 21 highR3	1881.50 Oct highR4	1906 July lowR5	1908.75 38.2% FiboR6	1958 2016 high (Apr 21)R7	2085 Long-term DTL (2006-2015 high)R8	2214 40 DMAR9	2166 UTL Jan/Mar lowR10	2259 20 DMAR11	2240 Lows Oct -Nov2014/dec 2014 highR12	2299 High August 2R13	2310 High so farR14	2405 May 2015 high

	Support:S1	2259 20 DMAS2	2259 UTL Feb/March lowsS3	2214 40 DMAS4	1878 Mar 2016 highS5	1867 NecklineS6	1736 March 2016 lowsS7	1701 38.2% FiboS8	1601.50 Sept lowS9	1487.50 Nov lowS10	1444.50 Low so farS11	1435S12	1390 Long-term SLS13	1038 2008 low

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0	Stochastics:Converging in high ground

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0	Legend:MACD – moving average convergence divergenceSL – support lineDTL – downtrend lineFibo – Fibonacci retracement lineH&S – head-and-shoulder formationCOTR – commitment of traders report

| Analysis

• Zinc has encountered overhead resistance and has struggled to vault above $2,300 in recent days.
• The long lower shadow on Friday’s candlestick formation indicates underlying support but the metal opened under pressure today.
• Support is seen from the 20 DMA ($2,260) and from the UTL formed by the February/March lows.
• The stochastics look weaker, with the fast line poised to cross lower.
• For now we expect dips to offer a buying opportunity.
• Support is also seen at $2,085 from the long-term DTL formed by the November 2006/May 2015 high as well as at $2,020-2,000 while the 40 DMA ($2,214), the 55 DMA ($2,165) and the 100 DMA ($2,027) should also provide support.
• But bullish investors are sitting on considerable but as-yet unrealised profits, suggesting a risk of profit-taking, particularly if investors start to turn risk-averse again.

Macro factorsLME/SHFE stocks are down a modest 13,784 tonnes so far this year following the recent delivery into LME-listed sheds in New Orleans. The proportion of LME stocks on cancelled warrant is 5.2 percent of total stocks, indicating the market is comfortably supplied. Warrant holdings data shows LME stocks are tightly held – one holder has 50-59 percent of warrant and one each accounts for 40-49 percent of ‘Tom’ and cash positions. Gains have coincided with tighter forwards, implying further producer hedging. The 3m-5yr spread reached $139 backwardation last week compared with $85 back at the end of May and $74 back at the end of April.Commitment of traders data showed net length among LME speculators was little changed – long liquidation was matched by short covering in the week to August 12. Net length among money managers increased 73 lots: gross longs declined by 7,055 lots and shorts fell 7,125 lots. Given that zinc’s dip was brief, more short-covering may follow. Likewise, if prices fail to make new highs, there could be more long liquidation too.The latest data from China’s National Development & Reform Commission (NDRC) showed refined zinc production fell 0.7 percent year-on-year to 3.53 million tonnes in the first seven months of the year – Chinese smelters drew on zinc concentrate stocks while higher prices have begun to prompt higher output among Chinese miners.The ILZSG pegged the refined zinc market in a 64,000-tonne deficit in the first five months of the year. Mine production fell 7.7 percent in January-May, with refined output down 3.6 percent over the same period. But while strong demand has been seen from galvanisers in China and Europe, global demand was up just 0.6 percent year-on-year because of weaker demand from galvanisers elsewhere in Asia, due to high Chinese exports.The latest figures from China’s customs administration showed steel exports increased 5.8 percent year-on-year to 10.3 million tonnes in July. They totalled 67.4 million tonnes in the first seven months, up 8.5 percent on the same period of 2015.Recent producer results continue to reflect the scale of tightness developing in the concentrate market as mine cuts and closures are felt. Boliden announced a 10.8-percent year-on-year increase in first-quarter output totalling 80,850 tonnes (metal in concentrate). In contrast, Glencore reported a 27.8-percent or 99,100-tonne drop in production to 257,100 tonnes in the same period. This adds to the significantly lower output already reported by Vedanta and MMG following the closure of the Lisheen and Century mines.ConclusionThe market will be looking to ILZSG data due later to confirm the scale of the deficit in the refined market in the first half of the year. Market indicators such as low physical premiums and the proportion of cancelled warrants suggest the market is amply supplied for now but, with Chinese mines in Huayuan County – a major mining zone in south China – ordered to halt production till June next year for safety inspections and SHFE stocks falling steadily, we believe supply-led tightness will become far more apparent from the second half of 2016.While a failure to vault resistance at $2,300 could trigger stale liquidation from despondent bulls, we believe investors will view dips as a buying opportunity.All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.[/table][/table]