The price of the metal rose to all-time highs buoyed by concerns that the Russia-Ukraine conflict may exacerbate the power crisis in Europe. Soaring electricity prices in Europe have sharply reduced the probability of restart of European smelters that halted operations last year. This has sparked fears of metal shortfall in Europe which accounts for nearly 17 per cent of global refined output and pushed Zinc physical premiums there to record highs.
Analysts note that Zinc inventories at LME warehouses have been consistently declining and currently stand near 120,000 tonnes compared to 300,000 tonnes in April 2021. Most importantly, stocks earmarked for delivery have jumped from 14,000 tonnes in the first week of March to 75,000 tonnes or 62 per cent of total stocks as of April 12.
Further, it is reported that Trafigura is withdrawing significant volumes of metal to make up for a shortfall in its own supplies after production cuts in Europe. Thus, the price rally in the metal is nowhere close to ending, and there is enough scope for upside.
“Zinc does not have direct supply-side repercussions when it comes to the Russia-Ukraine crisis but since it is an energy-intensive metal any disruption on that end may push prices higher,” said Kaynat Chainwala of Kotak Securities. “Considering that the two parties have not reached any resolution despite a number of peace talks, the European gas crisis too is far from over and hence further upside in Zinc prices cannot be ruled out.”
He expects MCX Zinc prices to trade with a positive bias towards Rs 405/425 levels while prices may find key support near Rs 325-330 levels. This means a potential upside of 14 per cent from the current levels.
On LME, the price breached the key resistance at $3550 in the first quarter of 2022 and confirmed its breakout of the rounding bottom pattern. Initial support for price exists around $4030, followed by $3800. All these technical factors support the bullish trend in Zinc.
“Hence, any dip towards the support zone would attract buying opportunities and push the price towards $4900, followed by $5155. Only a close below $3800 would bring a phase of correction in the trend and weaken it towards $3550,” said Chainwala.