December Zinc Price Forecast: Bearish Thanks to Sister Metals

December 28, 2015

On December 22, zinc futures traded close to 1% lower, representing an overall weak global trend for it and other metals.

On the London Metal Exchange, zinc dropped by 0.7% with analysts attributing the bearish turn of zinc futures trade to a weakness in copper and other base metals in the global markets. The reason? Questionable sustainability of Chinese demand, the world’s largest consumer of copper and other metals.

This happened just several days after zinc futures rose nearly 0.5%, due to an increase in demand in India’s domestic spot market. According to the Economic Times, zinc for delivery in January also rose, 0.3% during the same time frame.

The Fed’s Impact on Zinc, Other Metals

Just last week, the Federal Reserve announced it raised interest rates by 0.25%. This was not surprising as many analysts forecast a 78% chance the Fed would raise interest rates in December and they did exactly that. Now the markets are following suit:

With the dollar up, commodities and, more specifically, metal prices, are down. Our own Raul de Frutos wrote this week: “Gold, oil and many base metals hit new multiyear lows last week. Nothing seems to stop the bear commodity market and, in theory, higher interest rates shouldn’t do anything but cause more pain to commodity producers.”

One silver lining to this cloud is the downward pressure on commodities could cause them to hit bottom sooner, thus creating an eventual bullish impact on metal prices. Explains de Frutos:

“How? Low rates in the past decade fueled a massive investment in production facilities, which has led to the glut driving prices down. Higher interest rates also mean higher financing costs which could potentially accelerate production cuts longer term as producers struggle to pay their debts. This might eventually help balance the oversupplied market sooner than later, giving support to metal prices.”

Source:MetalMiner