MCX settled up 0.92% at 180.20 on short covering as LME Zinc ended the day at $US2778 a tonne, up 1.5 per cent. The discount of LME cash zinc to the three-month contract moved to $US27.25 a tonne its widest since October 2015 indicating adequate supply of refined metal in the market.
Supply-side developments may also be at play, with Votorantim saying last week Cajamarquilla in Peru would resume operations at 50% of capacity after a period of suspension due to floods. Refined zinc supply remains resilient, especially in China where refined production rose by 4.4% year-on-year in the first two months of 2017. But Chinese smelters may prove less resilient in the coming months after they announced that 540,000 tpy of capacity would be put on maintenance for unspecified period.
The LME spec positioning in zinc looks fairly elevated considering that the net spec length – at 78,473 lots as of March 24 – is at 79% of the all-time record (99,251 lots) from 2015. So this bout of long liquidation should not surprise investors. LME zinc has dropped 2.3% since the start of the week due to the gradual re-emergence of risk aversion, which is reflected in the downward pressure on major risk asset classes (such as equities), the rally in safe-havens such as gold and Treasuries and the fall in the dollar, highlighting the unwinding of global reflation trades despite fresh positive macro data from advanced and emerging economies.
Technically market is under fresh buying as market has witnessed gain in open interest by 2.16% to settled at 4831 while prices up 1.65 rupees, now Zinc is getting support at 178.9 and below same could see a test of 177.6 level, And resistance is now likely to be seen at 181.6, a move above could see prices testing 183.