Precious metal complex increased by 1 percent over the last week after the dovish Fed policy which stated to keep the interest rates steady in 2019 and guidance to stop reducing its balance sheet starting September 2019.
Base metal prices ended showing a mixed performance with Copper, Aluminium and Lead closing the week with 0.5 percent losses while Zinc and Nickel faced an upside of 1.9 percent and 0.6 percent respectively.
Energy complex closed the week on a mixed note with Nymex crude jumping another 2 percent from the last week while Nymex natural gas closed the week with 0.5 percent losses. Crude oil prices continued to trend higher after the surprise drawdown in inventory at a time when supply tightness is being created by the OPEC.
Zinc prices are moving in an upward trajectory from USD 2550 per tonne since the start of the year as worries over supply shortfall started to emerge with the continuous fall in LME inventories.
Currently with just 2 days of consumption in LME stocks is an indication of a huge tightness in the market. The cash to 3-month spread is currently trading in backwardation of USD 36 per tonne and with such low inventory Zinc would remain in rising trajectory.
The global zinc market in January 2019 was in a deficit of 28,000 tonnes. The current lower inventory will absorb the new mine supply expected to come online in 2019 and delay the surplus scenario to 2020.
We maintain our positive view on Zinc on tight inventories and increasing demand for zinc from China. The macroeconomic scenario also supports the outlook after the US Fed reversed its interest rate policy and keeping its interest rates steady in 2019 and guides to reduce its balance sheet reduction by September.
With EU agreeing to delay the Brexit until mid-April erases another global risk event. Another positive global event would be US-China trade deal.
We expect LME Zinc prices to remain supportive near USD 2750/oz and trade positive towards USD 2950-3000 per tonne in the coming quarter of 2019. Currently, the LME Zinc prices are trading at USD 2830 per tonne.
