Zinc made a headway in the month of July as dollar remained almost flat and Goldman Sachs stressed upside in zinc prices in the near term on back of strong demand from the Asian region. Producers are also betting on higher prices in coming months.
Zinc stocks in China are around 1.3-1.5 million tonnes after rising as much as 50% in January to April from late 2010, as some smelters had already cut production in May. Global refined zinc production may exceed demand by almost 200,000 tonnes this year, the fifth year running of over-supply. Zinc stocks in LME warehouses, are at their highest level since 1995.
They have climbed steadily since hitting a record low of just under 60,000 tonnes in October 2007. The global zinc market witnessed a surplus of 214,000 tonnes in the first five months of 2011, the latest monthly bulletin from the Lisbon-based International Lead and Zinc Study Group (ILZSG) showed while LME warehouses inventories are currently above 800,000 tonnes.
China is expected to witness a rise in demand of zinc by only 5% but improvement in demand pattern of zinc from Japan may continue to develop. Market participants believe that eagerness from top consumer China may get better along with Europe in the second half of the year but they are not much optimistic for rise in demand from U.S as many US steel mills are shut due to repairs and maintenance procedure which is likely to take a month before they become operative.
Despite lingering uncertainties about economies, investors are quite optimistic about zinc prices in the months to come. Zinc found a cushioned support near the lower trend line at Rs103/kg and rebounded from the same level to close almost 4 percent higher last month.
That said, zinc chart may demonstrate quite a bit of congestion at these levels. On the downside, additional support comes in at Rs. 96/kg and then Rs. 93/kg, while stiff resistance can be expected at Rs.113/kg and Rs. 117/kg on the upside. Stochastic oscillator and the RSI (14) remain neutral to bullish signaling sideways to higher prices possible in the near-term.
Overall, we expect a bullish month and traders should consider dips as buying opportunities targeting Rs. 115/kg on the higher side, while keeping in mind the strong support of Rs. 103.50/kg.
Courtesy: Religare Commodities
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