Shanghai Zinc's 12-Day Winning Streak Halts as Traders Reassess Stimulus Measures

On Tuesday, the unbroken 12-session rally of Shanghai zinc prices came to an end, primarily due to traders reevaluating recent stimulus measures introduced in the Chinese property sector.

The most actively traded October zinc contract on the Shanghai Futures Exchange (SHFE) experienced a 0.3% decline, settling at 21,200 yuan ($2,907.81) per metric ton. This drop marked a departure from its previous session high, which had not been seen since April.

Meanwhile, three-month zinc on the London Metal Exchange (LME) recorded a 0.7% decrease, reaching $2,462 per ton. This decline marked the second consecutive fall for zinc prices on the LME, following a four-week high reached on the preceding Friday.

The recent rally in zinc prices had been driven by several factors, including optimism surrounding increased demand in the Chinese real estate sector. Zinc is a critical component in the construction industry, making it highly sensitive to developments in the real estate market, which is the largest consumer of this metal in China. Additionally, the rally was further fueled by short-covering and speculative bets made in the short term, according to insights from a trader.

The Chinese government had recently rolled out a series of supportive measures aimed at boosting the property sector, contributing to the rally's momentum. However, it's important to note that these policies were primarily focused on top-tier cities. The trader pointed out that the key issues within the real estate market predominantly existed in lower-tier cities, where demand for housing and economic conditions were distinct from the major metropolitan areas.

The decision to concentrate stimulus efforts on top-tier cities created a disconnect between policy measures and the broader realities of the Chinese property sector. While the measures were undoubtedly beneficial for certain segments of the market, they did not fully address the challenges faced by lower-tier cities.

This development underscores the complexity of the Chinese property market, which encompasses a vast and diverse landscape. Different cities and regions experience varying degrees of demand, supply, and economic conditions, making it challenging to implement one-size-fits-all policies.

As zinc prices in Shanghai experienced their first decline in 12 sessions, it serves as a reminder of the dynamic nature of commodity markets, where various factors, including policy decisions and market sentiment, can impact price trends. The relationship between zinc and the Chinese real estate sector, as exemplified in this case, highlights the interconnectedness of commodity markets with broader economic conditions and government policies.

In conclusion, the 12-session rally in Shanghai zinc prices came to a halt as traders reevaluated the impact of recent stimulus measures in the Chinese property sector. While these measures initially fueled optimism and speculative activity, the targeted nature of the policies, focused on top-tier cities, highlighted the challenges faced by lower-tier cities in the real estate market. This development serves as a reminder of the complexity of the Chinese property sector and its influence on commodity markets, where multiple factors converge to shape price trends.