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While zinc prices remain supported at the $3,200 per tonne level for now, they are well off their January high of $3,854 per tonne and are starting to look technically more vulnerable to the downside. At the same time, the fundamentals are looking less tight. Exchange stocks have been rising – this year so far has already seen inflows on the LME of more than 90,000 tonnes, and SHFE stocks are up by almost the same amount.

Further monetary tightening by a more hawkish Federal Reserve risks more off-market stock reappearing out of the woodwork as the economics of financing stockpiles deteriorates. Meanwhile, Chinese smelters increased production by 2.5% year-on-year in January-February, reflecting improving concentrate availability. This is ahead of new, restarted and expanded mine capacity ramping up around the world this year. Zinc bulls are likely to require evidence of fresh tightness, such as a return to steady exchange stock drawdowns before they are willing to test the upside again.

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