Considering the recent significant sell-off experienced in the metals segment, resulting in a considerable decline in metal prices to multi-month lows, zinc had stood out as one of the metals that had experienced the most substantial loss. This decline can be attributed to weak demand and an unexpected increase in exchange stockpiles, causing zinc prices, which are essential for steel galvanization, to plummet to their lowest point in 28 months.


However, upon examining the performance of zinc in recent weeks, it is evident that the metal has managed to recover a significant portion of its losses. Several factors have acted as tailwinds, propelling prices higher from the 28-month lows. Notable among these factors are:

Chinese Rate Cuts:

The People’s Bank of China (PBOC), China’s central bank, implemented cuts in lending benchmark rates and short-term borrowing costs. This strategic move aimed to stimulate economic recovery and restore confidence in the market. The rate cuts, including the reduction in the seven-day reverse repo rate, indicate the possibility of easing longer-term rates, which can positively impact the demand for metals such as zinc.

Further support coming from a potential stimulus measure, as China’s cabinet pledged to roll out additional measures to spur growth in the economy. Moreover, a mild reading of the US Consumer Price Index (CPI) suggests that the US Federal Reserve will maintain steady interest rates. This, coupled with expectations of increased demand and tight supply, contributes to the upward trajectory of zinc prices.

Let us now analyze the various factors that have influenced the price of zinc. Notably, the actions taken by China to revive it’s slowing economic growth due to its position as the world’s second-largest economy and a major consumer of metals.

Headwinds weigh in:

Despite these positive factors, several headwinds continue to impede the upward movement of zinc prices. The rate cuts, though implemented, have disappointed investors as they were considered modest and fell short of expectations. This disappointment has led to a pullback in market confidence, with investors anticipating additional stimulus measures. The smaller-than-expected rate drop has left investors eagerly awaiting more substantial support to bolster economic growth and demand for metals.

China’s post-pandemic recovery has shown signs of losing momentum in the second quarter, characterized by weakening industrial output and retail sales growth, along with sluggish domestic and global demand, which present challenges to sustaining economic growth. Additionally, the global economic recovery remains sluggish, accompanied by deflationary risks, further exacerbating the challenges faced by China’s economy. The uncertain global market environment can undermine investor confidence and impact commodity demand.

Market Oversupply and Rising Inventories:

Another factor affecting zinc prices is the market oversupply and rising inventories. Recent data reveals an unexpected increase in zinc inventory, leading to an eight-month high in overall London Metal Exchange (LME) stockpiles. The rising stockpiles indicate reduced demand, with excess zinc being stored in LME warehouses. Furthermore, the strengthening of the US dollar has had a negative effect on commodities, making dollar-priced metals more expensive for buyers using other currencies.

Consequently, zinc, a crucial metal in galvanizing steel, has experienced significant price declines due to sluggish demand and surplus inventory. The slower-than-expected economic rebound in China, coupled with higher interest rates impeding growth in other regions, has contributed to the decline. Since their peak in January, zinc prices have plummeted over 30% due to a global supply glut. As of May 30th, 2023, LME data shows that zinc stockpiles unexpectedly reached an eight-month high of 87,500 tonnes, indicating weak demand, particularly in the building industry, which relies on zinc consumption. Lackluster performance in the construction industry in various regions has further dampened zinc demand, with China’s spring construction season falling short of forecasts, and construction activity typically decreasing in the summer.

Effect of a Strengthening US Dollar:

The strengthening of the US dollar, driven by concerns over the US debt ceiling and expectations of prolonged high-interest rates, has also contributed to the decline in zinc prices. Consequently, buyers using foreign currencies have had to pay more for commodities priced in dollars. The recent rally pushed the dollar index close to 12-week highs, adding further pressure to the metals market.


Considering the recent rebound in the base metals segment, metals such as Zinc has recovered from their monthly lows due to a mild US CPI reading, a rate decrease in China paired with demand expectations, and tight supply. Investors’ confidence was boosted further as China’s central bank cut short-term loan rates for the first time in ten months, which had a substantial influence on the base metals market. This measure attempts to restore market confidence and aid the Chinese economy’s post-pandemic recovery.

Given these factors, the outlook for zinc in the upcoming month is cautiously optimistic. The rate cuts and potential stimulus measures in China could provide some support, but the market may remain sensitive to any developments related to additional policy actions. Close monitoring of supply and demand dynamics, global economic conditions, and investor sentiment will be crucial in assessing the future direction of zinc prices.

We expect MCX Zinc prices to trade lower towards Rs.199 per kg. (CMP: Rs 215.15/kg)