Zinc prices are under pressure once again, making a weak start this year. The 9 per cent rally to $1,595 in December from the six-year low of $1,461 was halted when it took a sudden and sharp reversal last week.

The fresh rout on China fears triggered a heavy sell-off in the global financial markets. Spot zinc prices on the London Metal Exchange (LME) fell 6.2 per cent last week and are on the verge of revisiting the low of $1,461 touched last month. On the domestic front, the zinc futures contract traded on the Multi Commodity Exchange (MCX) was down 5.5 per cent last week.

The MCX-Zinc futures contract moves in tandem with the LME spot price.

The rupee weakening towards the 67 mark last week has helped in limiting the downside for domestic contract prices.

Zinc prices have been continuously falling since May last year, spooked by China slowdown fears. Adding to this are the surging inventories.

According to the International Lead and Zinc Study Group (ILZSG), there was an oversupply of 2,13,000 tonnes for the period January to October last year.

The ILZSG had forecast that the market would be in deficit again in 2016 with supplies expected to fall short of demand by 1,52,000 tonnes. But given the current situation and fading chances of a strong revival in Chinese consumption, 2016 ending with a deficit looks less probable. The picture will become clearer as we proceed through 2016.

Technical outlookMedium-term view : LME Zinc spot prices have been in a strong downtrend since May 2015. During the downtrend, prices have been consolidating sideways between $1,450 and $1,600 since mid-November.

The sharp fall last week has increased the probability of the downtrend resuming in the coming weeks. There is a key long-term support at $1,400, which is likely to be tested in the short term. Whether this support breaks or holds will decide the next trend.

A strong break below $1,400 will increase selling pressure and drag prices lower to $1,300 or below. On the other hand, a reversal from $1,400 could see the prices rising towards $1,600 once again.

A strong break above $1,600 will cap the downside and take prices higher to $1,700 and $1,750 over the medium term.

On the domestic front, the MCX Zinc futures contract has support at ₹97.5 and ₹96.5. A strong break below these supports will increase the danger of the contract falling to ₹92 and ₹90 — the 61.8 per cent Fibonacci retracement support level.

The 21-week moving average at ₹109 is a key resistance to watch. Only a strong break above this hurdle will ease the downside pressure and signal a trend reversal. Such a break will then open the doors for a rally to ₹115 and ₹120.

Short-term view : The contract has been trading sideways in a range between ₹97.5 and ₹108 since mid-November. It is currently poised near the lower end of this range. A breakout on either side of ₹97.5-108 will decide the next leg of the move for the contract.

An upward reversal from ₹97.5 will keep the range-bound movement intact. In such a scenario the contract can move up to ₹100 and ₹105 in the short term.

On the other hand, a decisive break below ₹97.5 will turn the outlook negative and can drag the contract to ₹95 thereafter.

The outlook will turn positive only on a strong break above ₹108. Such a break can take the contract higher to ₹109 initially and then to ₹111 in the short term.

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