Zinc prices declined by 0.3% to close at Rs 278.45 as traders realized profits in the wake of the U.S. Federal Reserve’s rate cut, compounded by a stronger dollar following Fed Chair Jerome Powell’s indication against further aggressive easing. Nonetheless, the drawbacks appeared constrained in light of the tightening supply dynamics and anticipations of production cuts in China, as officials strive to mitigate overcapacity in critical industrial sectors to address deflationary pressures.

Economic indicators from China have shown continued signs of weakness, as August industrial production declined to a one-year low and retail sales experienced a slowdown to an eight-month low, both falling short of forecasts. Zinc inventories at the Shanghai Futures Exchange increased by 8.8% from last Friday, whereas LME stocks experienced a significant decline, now standing at 50,150 tons, which marks a decrease of nearly 75% since April. Cancelled warrants amounting to 15,375 tons indicate additional outflows, resulting in a backwardation of approximately $18 per ton between cash and three-month contracts.

In July, China’s zinc production experienced a significant year-on-year increase of 23%, bolstered by the resumption of smelter operations, notwithstanding some localized maintenance activities. September output is anticipated to decrease marginally by 16,400 tons, bringing the total to 609,800 tons, a change attributed to certain supply disruptions and weather-related limitations.

From a technical perspective, the market experienced long liquidation, evidenced by a decline in open interest of 11.46% to 2,618, coinciding with a price decrease of Rs 0.85. Immediate support is established at Rs 277.3, with the possibility of a decline to Rs 276.2 if this level is breached. Resistance is identified at Rs 279.7, and a movement above this threshold could pave the way toward Rs 281.