Zinc market trend continues in 2011

Zinc has finally shown some gains this year and in the coming year also the metal is set to move up breaking the downward trend for quite sometime.

Cashing in on this upward movement, China sold almost all of the 50,000 tonnes of zinc put up for sale at an auction of state reserves on November 9.

The multi-month zinc rally since the June low of $1,600/tonne has further to run in the coming year, and may close around the current level would presage further gains towards the January high of US$2,736/tonne. According to analysts, Zinc prices will benefit from the broad based rally in base metals, as well as idiosyncratic supply dynamics, and these factors will likely see the metal trade within the $2,200-2,800/tonne range over coming months.

Analysts have forecast that the three-month zinc will average $2,450/tonne. Experts said zinc prices will remain well supported going forward, and forecast an average price of $2,550/tonne in 2012.

The US Fed’s decision to purchase an additional $600bn in treasuries over the coming months in a ramping up of its quantitative easing strategy will provide ample liquidity to markets, and will see risky assets head higher over the medium term.

The Fed’s actions will also put downside pressure on the US dollar, which has an inverse relationship with commodity prices. Again, the strong demand in emerging markets, combined with limits to output increases as China scales back some production, will see the zinc surplus narrow.

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