Zinc on MCX settled down -1.53% at 184 as weak market fundamentals dragged down zinc and fueled exodus of longs before the 2017 Chinese New Year holiday. Raw material tightness and thinner profit from falling zinc prices depressed zinc smelter production. When combined with environmental protection inspections and low-demand season, China’s refined zinc output was 465,000 tonnes in December, down 1.8% month-on-month. China’s refined zinc output is expected to fall further in January to 453,000 tonnes, a slide of 2.5% month-on-month, but up 5.3% year-on-year. Production cut at zinc smelters will be less than expected in Q1 2017. China’s refined zinc output will be 1.29 million tonnes in Q1, up 1.6% year-on-year but down 8.5% month-on-month. Zinc is being supported by tight market fundamentals with the expectations of a supply deficit buoying the metal’s price. Last week the commodity gained some extra upside impetus from a pullback in the US dollar. LME zinc prices appreciated by 60% in 2016, boosted by a significant drop in supplies after major miners shuttered some operations following years of weak prices. At the same time, demand for zinc heated up as China embarked on an infrastructure spending program. Looking to 2017, it is expected that zinc will continue to gain support from tightening market fundamentals, but at the back of traders’ minds is the possibility of mining restarts as the metal appreciates. While this is a concern, so far only smaller miners have indicated restarts could be coming. The world’s largest zinc miner, Glencore, whose zinc mining cutbacks have really driven this rally will be cautious about restarting idled production. Technically market is getting support at 181.6 and below same could see a test of 179.1 level, And resistance is now likely to be seen at 186.5, a move above could see prices testing 188.9.

Trading Ideas:

Zinc trading range for the day is 179.1-188.9.

Zinc prices ended with weak sentiment as a firmer U.S. dollar pressured the market.

Zinc inventories in Shanghai, Tianjin and Guangdong added 15,300 tonnes to 216,000 tonnes in January.

Downstream producers are expected to restart earlier after the 2017 Chinese New Year holiday compared to years past.