Zinc, copper and aluminium prices at risk as China plans sale of strategic reserves

Updated: July 22nd, 2021 01:40 PM IST

Zinc, copper and aluminium prices at risk as China plans sale of strategic reserves via @IGcom

Zinc, copper and aluminium prices at risk as China plans sale of strategic reserves Photo

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China plans to auction reserves of copper, zinc, and aluminium in a bid to drive down prices. Will this result in another leg lower after recent declines?

Recent talk that the Chinese will release reserves of key commodities to the market have provided another reason to temper bullish sentiment for one of the biggest areas of upside seen throughout 2020.

Chinese demand has been a key driver of gains in commodity prices, yet that rise in underlying input prices have ultimately led to a situation where growth is being stifled as a result.

Thus, todays announcement from China is just the latest in a protracted attack on key commodity valuations, with the world’s biggest consumer of raw materials opting to auction 170,000 tonnes of metals from state reserves on 29 July.

That consists of 30,000 tonnes of copper, 90,000 tonnes of aluminium and 50,000 tonnes of zinc. With that in mind, we could see some further selling pressure come into play as we move forward.

With that in mind, it is worthwhile looking at these assets to gauge whether they are at risk of a bearish reversal or simply set to maintain the bullish momentum established last year.

Zinc is one commodity that appears to be at risk here, with price having broken down through trendline support back in mid-June. That raises the risk that the subsequent rebound falls short of the prior high.

With that seemingly having occurred as the zinc price rolls over from the 76.4% Fibonacci zone, there is a chance we could see another leg lower from here.

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