Zinc Declines as LME Inventories Reach Highest Level in 17 Months

The recent trajectory of zinc prices witnessed a dip of -0.31% during the previous trading day, ultimately settling at a value of 209.5. This downward movement comes against the backdrop of a significant uptick in zinc inventories residing within warehouses affiliated with the London Metal Exchange (LME). This accumulation has catapulted inventories to a level unseen for a span of 17 months. The underlying implication of this surge in stockpiles is the pronounced presence of a market surplus, a circumstance stemming from a state of subdued demand.

In the realm of zinc trading facilitated by the LME, an intriguing phenomenon known as backwardation has garnered traction. This phenomenon has manifested as the cash contract adopts a position that offers a $12.50 discount per ton when juxtaposed against the three-month contract. This disparity represents a substantial deviation, marking the most pronounced discount observed since the date of July 21. It's of significance to note that this upswing in zinc inventories has unfolded ahead of the imminent expiration of LME's monthly futures contracts. This specific juncture serves as a period during which investors possess the prerogative to furnish physical metal to LME warehouses in order to fulfill their future contractual obligations.

This projection is significantly shaped by the persistent presence of inflationary trends and rigorous monetary policies that have taken root across both the United States and Europe. Concurrently, indicators pointing to a lackluster performance within the manufacturing sector and struggles within the property domain underscore the necessity for further stimulus interventions to invigorate the world's preeminent economy.

Of particular note, China has articulated its aspiration for a 5% annual growth rate for the ongoing year. However, this target has met skepticism following the release of July's economic activity data, which failed to align with expectations. As a result, an increasing number of economists are sounding the alarm that this goal could be unattainable unless Beijing intervenes with enhanced support measures. In response, China's central bank has opted to infuse additional liquidity into the market, thereby augmenting the availability of funds aimed at fortifying financial assets.

From a vantage point informed by technical analysis, the market is presently traversing a phase characterized by long liquidation. Tangible evidence supporting this trend lies in the observation that open interest has contracted by approximately -9.67%, culminating in a settlement value of 3231. This phenomenon is complemented by a corresponding decline in prices, which witnessed a contraction of -0.65 rupees. Currently, Zinc has managed to establish a support foothold at the level of 208.2. Should this foundational level be breached, it could potentially pave the way for an exploration of the 206.7 range. On the other side of the spectrum, market dynamics suggest an emergence of resistance poised at 210.9. A successful breach of this resistance level could set the stage for an ascension toward the 212.1 price point.