Zinc hits two-week low on dollar rally, global growth woes

  •  Zinc fell for a third session on Tuesday, hitting its lowest in more than two weeks as the dollar held at a two-month high
  • Global equities rallied as investors grew more optimistic about US-China trade talks 

LONDON: Zinc fell for a third session on Tuesday, hitting its lowest in more than two weeks as the dollar held at a two-month high and investors remained concerned about global economic growth.

In the wider markets, global equities rallied as investors grew more optimistic about US-China trade talks and cheered Washington's deal to avoid another government shutdown, but this was not enough to lift metals.

"The rational for higher (metals) prices right now is not stacking up," said Bank of America-Merrill Lynch analyst Michael Widmer. "There (has been) higher confidence that maybe if we get a trade deal we'll get higher prices, if China data improves we'll get higher prices. But realistically, for now, the US is slowing, Europe is going nowhere and China is finding it hard to stimulate its economy." He added, however, that zinc should find support at about $2,400 to $2,500 a tonne because of tight stocks.

Benchmark zinc on the London Metal Exchange shot up by nearly a fifth in the month to 5 February, when it touched a seven-month peak of $2,810 a tonne, but has since slipped. At 1103 GMT it was trading 0.4% down at $2,634.50 a tonne.

■ Zinc Stocks: Underpinning zinc, data showed LME zinc inventories have eroded further to their lowest since January 2008.

■ Zinc Technicals: Zinc attracted additional selling on Monday after it breached the 200-day moving average at $2,662.51.

■ Spreads: Cash zinc traded at a premium of $1 a tonne to the three-month price, off a high of $125 in early December, though Citi said the reduced tightness in the spreads was lulling the market into "a false sense of looseness".

■ Demand: "The seasonal demand pick up in the second quarter has the potential to almost wipe out (zinc) exchange stocks. Our short-term point price target remains $2,800, but by the end of the year we expect zinc to trade down to $2,400," the bank said.

■ Trade Talks: US Trade Representative Robert Lighthizer arrived in the Chinese capital on Tuesday ahead of high-level trade talks scheduled this week for the world's two largest economies to hammer out a deal ahead of a 1 March deadline.

■ Thyssenkrupp: German steel-to-elevators group Thyssenkrupp on Tuesday warned of a darkening economic backdrop, including a weakening automotive market, signalling tough times for its capital goods business ahead of a planned separation.

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