SMC Global Securities has come out with its report on trading opportunity in zinc & lead.
Zinc and Lead have shown stunning recovery recently as Greece passed austerity measures but this will be short lived and it is only relief measure because overall euro zone problems is much bigger. Macroeconomic jitters surrounding Europe's debt crisis and potential monetary tightening in top buyer China will continue to weigh on the prices. Moody's cut Portugal's credit standing to junk, warning the country may need a second round of rescue funds before it can return to capital markets. So the inflationary concerns in China, Middle East tensions and spread of debt crises in Europe will continue to keep the prices under pressure.
Lead: Investors can take fundamental sell position in MCX Lead (August) contract in range of 120.80-121.80 for target of 116 and 114 with stop loss of closing above 124.10.
Zinc: Investors can take fundamental sell position in MCX Zinc (August) in range of 106.90-107.60 for target of 103 and 100 with stop loss of closing above 109.50.
Zinc witnessed extreme volatile movement in June 2011 as its prices hovered nearly in range of 96-104 in MCX. Mixed fundamentals kept the prices in tight range but the news of aid package for Greece supported the bullish sentiments during the last week of the month.
On mining front: Toho Zinc , Japan's No.3 zinc smelter planned to produce 21 percent less zinc in April-September first-half of this financial year than a year ago, or 45,000 tonnes, as its Onahama plant resumed operations on June 1 as planned.
China effect: Chinese zinc prices may fall further between June to August as smelters sell stocks and cut output on lukewarm demand, reducing imports of concentrate. China produced 9.8 million tonnes of galvanized steel in the first four months of 2011, up 18 percent on the year versus a yearly growth of 69 percent in January- April 2010. The bulk is zinc galvanized steel, the top user of China's 5 million tonnes of zinc consumption estimated for 2011. In the first four months, China imported 954,624 tonnes of zinc concentrates, down 10.7 percent on the year. Output from China's mines rose 8.7 percent to 1.1 million tonnes of zinc in concentrate. Japan's refined zinc exports for May fell 32 percent from a year earlier to 5,905 tonnes, narrowing from April's year-on-year drop of 40 percent.
International Lead and Zinc Study Group ---Zinc Estimates: According to International Lead and Zinc Study Group (ILZSG) global zinc market was in surplus by 178,000 tonnes in the first four months of 2011. In its previous bulletin, ILZSG estimated the market was in 111,000 tonnes surplus in the first quarter. Latest figures show global refined zinc use was 4.093 million tonnes in January-April 2011, compared with 3.943 million a year earlier. World refined zinc output rose to 4.271 million tonnes from 4.109 million over the same period.
Lead prices hovered in range of 107-118 in the month of June 2011. Prices remained on extremely volatile path in June month but witnessed swift rally in last week of the month amid rise in cancelled warrants in LME and overall positive sentiment which prevailed in the base metals pack after Greece passed austerity measure and EU come forward to support the Greece.
It is expected that Global Lead demand will rise by close to 6% in 2011, but world refined lead production is not growing as fast as the demand. Supply constraints and solid demand will push lead prices higher despite prospects a current crackdown on polluting battery-makers in top consumer China will hit consumption there in the short term.
Chinese Crackdown: More than 300 lead acid battery plants in China's eastern Zhejiang province and southern Guangdong province were closed in May for safety checks, cutting lead demand in the short term. In the longer term, the closure should not cut China's lead demand sharply as it is unlikely to extend for the rest of 2011. Battery production accounts for about 70 percent of domestic lead consumption. About three quarters of lead-acid battery manufacturing plants in China could be phased out in the next 2 to 3 years after Beijing launched a crackdown.
Supply constraints and solid demand will push lead prices higher despite prospects a current crackdown on polluting battery makers in top consumer China will hit consumption there in the short term.
Lead demand is less vulnerable to economic cycles than that for most other base metals. About 40 to 50 percent is used in replacement batteries, which are subject to the vagaries of weather rather than economic conditions. Lead was resilient during the financial crisis and that's going to continue and hopefully be reinforced by a general pick up in new batteries for new cars and vehicles.
International Lead and Zinc Study Group Lead Estimates: The International Lead and Zinc Study Group (ILZSG) in April increased its forecast for surplus global refined lead production for 2011 to 123,000 tonnes from its last view of around 90,000. The global lead market was in surplus by 74,000 tonnes in the first four months of the year. In its previous bulletin, ILZSG estimated the market was in a 24,000 tonnes surplus in the first quarter. Latest figures show global refined lead use was 3.242 million tonnes in January to April 2011, up from 2.886 million tonnes in the same period last year. World refined lead output was 3.316 million tonnes, compared with 2.909 million tonnes a year earlier.
http://www.moneycontrol.com/news/brokerage-recos-others/trading-opportunity-seenzinclead-smc-global_563623.html
At the Multi Commodity Exchange, zinc for July delivery traded higher by 65 paise, or 0.61%, to Rs 106.35 per kg, with a business turnover of 1,017 lots.
