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Below is quote on Zinc Update By Mr. Yash Sawant, Research Associate, Angel One Ltd.

Zinc Prices ease

Zinc gained over 11 percent on the LME and about 9 percent on the MCX since October’21 following worries over disrupted supply amid resumption in global economic activities.

Along with the Limited supply of Zinc from major producer China, production cuts announced by major suppliers like Glencore, Nyrstar and Trafigura kept the Zinc supply chain tight. Also, the recent power crisis witnessed in major economies pressured smelting capacities around the globe and helped Zinc prices advance to record levels in October’21.

Disrupted supply came in line with the resumption in global economic activities which further strengthened market sentiments. Easing pandemic forced restrictions raised expectation of revival in global demand which added to the upside in Industrial metal prices.

However, the rally in Zinc and other industrial metals soon ended reflecting the increasing inflation concerns and China’s move to ease power prices. Easing coal prices in China, which is a key component used for powering smelters and other production activities, somewhat took the pressure off the supply chain.Also, slow growth in China’s industrial sector further pressured the Base metals.

Increasing energy usage limitations hampered China’s steel production which clouded the outlook for Zinc which is majorly used for galvanization.

Supply worries persist

The supply threats for Zinc continue to intensify following reports suggesting a halt in operations at Glencore’s zinc sulphide operations in Italy for Maintenance work. The Zinc plant has an annual capacity of 100,000 tonnes.

Also, the Swedish miner Boliden stated earlier this week that its Tara Mine in Ireland (one of Europe’s largest Zinc reserves) had to stop the output activities after large amounts of water enter the mine while drilling of the ventilation shaft. The Mine produced 127,000 tonnes of Zinc concentrate in 2020.

Even the reports from the International Lead and Zinc Study Group (ILZSG) showed that the deficit in the global zinc market deficit climbed up to 44,000 tonnes in September’21 from a deficit of 14,000 tonnes in August’21.

Outlook

While the supply worries from China have eased in the past few weeks; weaker demand prospects from their property sector still remains a considerable headwind for Zinc and other industrial metals.

Moreover, a stronger US Dollar following bets over an early hike in interest rates by the US Federal reserve might further pressure the Base metals complex. Higher interest rates could trim the liquidity in the financial markets. Markets are expected to have a keen eye on the developments in the US economy for cues on FED’s upcoming move.

Bleak demand from China, lockdown in Europe and bets over a tighter monetary policy might keep Zinc prices under pressure in the coming weeks.

We expect Zinc prices to trade lower towards Rs.260 per kg in a months’ time frame. (CMP : Rs.274)

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