Zinc yesterday settled up by 1.11% at Rs 283, influenced by investor expectations regarding forthcoming U.S. interest rate reductions and apprehensions surrounding tightening supply. The U.S. dollar experienced a decline following an increase in jobless claims and the persistence of moderate inflation data, which bolstered market expectations for a potential rate cut by the Federal Reserve in the upcoming week. Meanwhile, the Chinese government intends to enhance fiscal reforms and employ fiscal instruments to boost consumption and investment, thereby bolstering sentiment in the industrial metals sector.

On the supply front, Zinc inventories in LME registered warehouses have experienced a notable decrease, currently at 50,825 tons – reflecting a nearly 75% decline since mid-April. Cancelled warrants indicate that an additional 15,375 tons are poised to leave the LME system. This scarcity has resulted in a backwardation in the market, with the cash price presently trading approximately $18 per ton above the three-month forward contract.

Production dynamics exhibited a mixed performance. Production disruptions were reported at some smelters in South China due to heavy rainfall, whereas others ramped up output. Consequently, China’s refined zinc production experienced a month-on-month increase of 3% and a year-on-year rise of 23% in July. Nonetheless, reductions in capacity by Chinese miners and refiners are expected to constrain any substantial downside.

From a technical perspective, the market is experiencing short covering, evidenced by a decline in open interest of -6.43% to 3,389 contracts, alongside a price increase of Rs 3.1. At present, Zinc is encountering support at Rs 276.6, with a potential examination of Rs 270.2 should corrections prolong. Resistance appears to be positioned at Rs 286.6, and a significant breakout may lead to prices approaching Rs 290.2.