The spread of Zinc and Lead has tested record low of -96 levels as the Zinc prices rallied this year on higher infrastructure spending supported by continuous drawdown in LME inventories.
Precious metal complex resumed its selling last week with Gold prices falling by 1 percent and Silver prices down by 0.2 percent.
Base metal prices also ended lower with Zinc and Nickel falling the most, while other metals ended down by another 0.5 percent, as the weak manufacturing data from Europe took the shine off the metals.
Zinc prices fell by almost 6 percent last week on expected new mine supply and higher inventories.
Similarly, energy complex ended the weak with Crude oil for the first time closing the week on a flat note while Nymex natural gas closed with losses of more than 6 percent due to lack of seasonal demand and expectation of higher inventory release.
The spread of Zinc and Lead has tested record low of -96 levels as the Zinc prices rallied this year on higher infrastructure spending supported by a continuous drawdown in LME inventories.
LME Zinc inventories halved and reached the decade low level since 1998, creating huge tightness in the refined market and thus making Zinc the second-best performer this year.
Going forward, we believe this tightness in Zinc would vanish on higher treatment and refining charges.
Also, the addition in LME Zinc inventories this week has triggered weakness in zinc prices. On the other hand, the supply of Lead will reduce going forward due to tightness in the lead concentrate market.
Inventories of both Zinc and Lead are near-decade low, however the large inflows in zinc inventories this week implies that supply tightness will disappear soon.
LME Zinc inventories jumped to 73,700 tonnes, rising from the record low of 50,000 tonne in January 2019. Also new mine supply is expected for Zinc. Lead stocks have remained unchanged.
We expect the ratio Sell Zinc and Buy Lead to become narrow towards -75 to -70. At present the ratio is trading at -92.
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