Zinc the metal for 2006

[chops_a_must]

These tell an interesting tale:



The last time zinc inventories were at this level, spot zinc prices were at record highs. Now, prices are near their last relative high. It probably provides good value for those looking to buy zinc commercially.

Zinc inventory had gone down recently, seems like China merchants have stopped exporting zinc. If this reversal is sustainable, we might see zinc price rebounding again. Previously I had heard that consumers are willing to buy zinc at $4000. With current zinc price way below $4000 now, I would assume that demand for physical zinc is much higher now in Asia ex China.

Brend, is it likely that there will be more ins of zinc in the near future, or has this latest surge been the end of it?

 

[brerwallabi]

Seems like China has been buying up copper stocks lately.

"Seems" they are just buying a bit of spot when they need to.

Have you looked at three month fwd contango it "seems" to have been shrinking over the past few weeks despite increasing inventories.

 

[BREND]

These tell an interesting tale:



The last time zinc inventories were at this level, spot zinc prices were at record highs. Now, prices are near their last relative high. It probably provides good value for those looking to buy zinc commercially.

Brend, is it likely that there will be more ins of zinc in the near future, or has this latest surge been the end of it?

I wish I know if it is now the end of it. But I last heard that there is still a lot of zinc in China, export may stop because price is no longer attractive now.

I will advise not to read too much into brokers' report relating to zinc. I always read from report that zinc demand is strong, contrary to what my customers who are zinc suppliers had told me. They always said zinc demand is very poor, nobody wants to buy at such a high price. At that time, zinc price was above $4000 level. Demand should improve now since price is so low.

 

[BREND]

"Seems" they are just buying a bit of spot when they need to.

Have you looked at three month fwd contango it "seems" to have been shrinking over the past few weeks despite increasing inventories.

My London counterparts have confirmed that it is China who has been buying copper lately. Yes, has been monitoring contango closely as well.

 

[Magdoran]

Mag etc, you are straying off topic!
But as the heading was for "2006" I reckon it's done and dusted.
Do we start a new thread, Joe Blow?
On topic:
In the last 2 months of 2006, China accounted for almost half of its annual zinc exports.
Needless to say, the flood of zinc into the marketplace has affected LME trends.
It will be very difficult for China to maintain the export trend as it was predicated on changes to the tax regime which made rapid divestment of metal more profitable than holding on inventory.
So we are now left with a zinc "overhang" that needs to work itself off.
It's early days, and only a supreme optimist would think that we will soon re-tread the rapid pace of zinc drawdowns that were the theme of most of 2006.
However, LME drawdowns of small but noticeable quantity have recently emerged. They may be indicative of a change for the better. But a waiting game is best played for now.
Here's a question for those that short the markets:
If you were to short one of the base metals, and you could only choose out of zinc, copper and nickel, which one do you pick on Monday?

Geez “crusader” rederob,


So, you don’t think that we can stray a little on these threads once in a while and have a little fun? What a sterile world we’d live in if the thought police swooped in every time a little tête-à-tête eventuated. This is unusual for you – since when did you become such a killjoy? Maybe we should rename the thread to “rederob’s corner”?

Do you really object to my reserving the right to occasionally respond to silly adverse comments, and digress with the occasional bit of banter (provided it’s not overdone)? You’ve done this yourself with Ducati – Glass houses???

Ok, back on topic (once again derailed by the peanut gallery) - Oddly enough my best shot guess currently for the XAO is a bullish drive of some kind into a top around the 24th of Feb (assuming Friday’s low holds), and suspect ZFX may blow off into a top around the 23rd Feb, if the cycle I am using is correct (could also move down into this date if the bullish pattern is not validated).

But the fly in the ointment is the Zinc chart, where the cycle is ambiguous. I am still working on this… Hence I agree with you, it is time to play a waiting game. It could be that it may try to rally but this could be a counter trend to a corrective move, and may pull back from any highs, or it is possible for it to retest the major high.

As for the other metals, I suspect Nickel may top soon. In fact, the best cycles I can see tend to indicate that Saturday may be a key time increment (hence this might be the top now), and would expect at least a small pull back ether Monday or Tuesday. If this is not a major top (the current pattern is very bullish and not the kind I like to enter short on – it is going against the trend), but may yield some sort of pull back if the cycle is correct, a high may also eventuate around 25th Feb (or could be a low).

Hence watching to see how nickel pans out. I expect it to pull back for 1-4 counter trend days, but it may actually correct from here if the pattern sets up right. A lower high (if it does move down Monday night) which fails to take out the current high may have bearish probabilities.

Of course it is too dangerous to even consider shorting an obvious bullish trend at this point, but I’m aware of the potential risk to long positions currently, hence uncommitted. If the price action confirms a bullish pattern though, and takes out the high (4 or under bearish days would be bullish, depending on how deeply the price moves), this may even try to blow off, hence this may actually be a long, and not a short – the pattern of trend will be the key.

Copper also appears to have a significant date on the 23 Feb too if my reading of the time cycles is correct. Whether this is where a major low would come in, or a counter trend high, or a higher low, I don’t know yet, and this also assumes the cycle is right, but I’m not totally happy with it at the moment. Technically Copper is still bearish in the daily chart but it may be nearing support and may counter trend bullishly; hence I don’t think I’d be short copper right now with a full position. There is an outside chance of a capitulation like the recent fall in oil, but this kind of position would be more like a lottery ticket.

In sum, just like you, I’m sitting this out to wait for a good trade… Next week will be very interesting. But if copper can’t rally up soon to take out the 11 Jan lower high, we may see a retest of the low, or even a continuation in the bearish movement. Too hard to call right now, so I’m keeping an open mind. But if oil can capitulate like it has, so can any of the metals.


Regards


Magdoran

P.S. Just out of interest rederob, are you just buying straight shares in ZFX? You’re not using warrants or options or CFDs are you? Perhaps you’re using margin? Mag

 

[rederob]

Geez “crusader” rederob,


So, you don’t think that we can stray a little on these threads once in a while and have a little fun? What a sterile world we’d live in if the thought police swooped in every time a little tête-à-tête eventuated.

Regards


Magdoran

P.S. Just out of interest rederob, are you just buying straight shares in ZFX? You’re not using warrants or options or CFDs are you? Perhaps you’re using margin? Mag

Mag
Stray as much as you like...... it's all good fun.
I just wanted you back on topic - selfishly!
I would see myself as a very interested "investor" who buys and sells FPOs only: The few options I have were "free attaching".
It would be unusual for me to buy a stock and not hold it for 6 months minimum.
With ZFX I see a period of consolidation essential to its ongoing success, so now is as good a time as any to have it.
I have a present downside target of $15.50 and then a less likely $11.50 for the stock.
But I still believe longer term the stock is destined for over $20 on a likely resumption of zinc's inventory drawdown theme in coming months.

 

[rwkni1]

Yes, but do you understand how markets trend? You could extend the same kind of theoretical fundamental argument to crude oil, and rail against the recent price action saying it is contrary to your estimations.

Please do rail all you like. I just love guys like you who try to catch that falling knife buying a falling instrument while the savvy players are selling short. You can argue the finer points till you’re blue in the face.

Brian Price did the same thing for a long time staying short losing $25 odd million dollars during the height of the “dot com” boom, as it turns out later correctly evaluating that the valuations in the market in dot com stocks was way out of wack with the reality… But the timing was wrong.

Markets can reach ridiculous prices either fuelled by unbridled greed, or driven by frenzied fear and panic. Just look at the price of oil for a roller coaster ride, or the NASDAQ from 1998-2000. Try studying those charts for a lesson in market behaviour.

In simple terms price falls when there are more sellers than buyers… You don’t have to divine what every person involved was doing, the price action is quite obvious to many technical analysts.

Don’t get me wrong, I have a very healthy respect for good fundamental analysts, but when markets move, they can often overshoot the mark since they are emotionally driven. You may consider remembering this and wisely take market sentiment and market behaviour into account rather than rigidly applying a theory.

Regards


Magdoran

Magdoran, I understand that market sentiment plays a big role, and clearly the sentiment has been negative for the last few weeks. Where I differ from you, is that I think that sentiment has resulted in the market being oversold (as opposed to being overbought at US$2/lb). I’ve been way overweight in zinc stocks for a couple of years now, and if I had sold everytime there was a shift in sentiment I probably would have missed out on much of the upside. Constantly trading in and out and trying to pick peaks and troughs adds a whole new element of risk as far as I’m concerned – maybe you’re a trader and that’s your game, I don’t know. LME inventories may start heading south tomorrow, or in six weeks, but as far as I can see, all of the available information suggests that stockpile draw-downs will resume. I think it would be more risky for me to take a position that contradicts this information in the hope of a short-term gain. My interpretation of being bullish on zinc is not that prices will roar to $3/lb in the next six months, rather, that prices will consistently outperform analyst forecasts over the next 12 months - at least. By consistently surprising on the upside, analysts will be forced to upgrade their zinc price forecasts ahead of results, resulting in earnings upgrades for zinc producers and share price appreciation. Oh, and as far as I can see Goldman Sachs are bullish on zinc – in their latest release on Base Metal Prices (Jan 10th) they claim they expect to see zinc prices climb back above US$2/lb by mid-FY07 and envisage a supply deficit for the year as a whole.

 

[Freeballinginawetsuit]

Aha! So you’re the “carp” in this pond huh?

I’m sure you’re a trainee psychologists dream for a case study! It’s like a set of those Russian dolls, endless enigma in enigma, but the most amusing thing of all is you just don’t see it, do you “Freeball”?

You’re a funny guy “Freeball”, calling me “little fella” cracks me up. A mate of mine in my youth used to call me “the little guy” which was kind of a joke since I’m 6ft 3… so I’ll take your label as a term of endearment.


Mag

Geez 'Big Fella'

My original quote in question referred to your comparrison of NAZDAQ/POO to Zinc. I must admit I didn't really take note of the rest of youre post (market trends etc), which I should have . I found the aforementioned comparisons in reference to current Zinc prices silly.... plain and simple.

As you well know, NAZDAQ is a tech driven index in a different market place and driven by different fundamentals that could certainly not be deemed necessities of the market factors currently driving Zinc ATM.

Oil is a volitile resource, subject to external factors/manipulation within a primary western consumer market, although in the not to distant future by products of China's industrialization will be chomping lots of the black gold, changing the dynamics of this comodity as well.

So I found your comparrisons to current Zinc Spot and Stocks irrelevant.

Personally I have made my opinions felt on the relevant threads regarding Zinc prior to the last correction in November. Whilst others were propents of Blue Sky and praising more room to run for Zinc etc, I was stating take youre profits as a correction was likely.

I also said the total opposite back in June when the market corrected and predicted Zinc and Nickle would run, and stated which stocks were value etc.Again many on ASF didn't share these views

Isn't that what ASF is all about, stating youre opinions for a broader more collected viewpoint .


The fact of the matter is that Zinc as a commodity and the Zinc stocks in general have had a great year in 07. Most have gone up 300 percent plus. Results for the Dec quarter will be coming out about now and they will be terrific, the larger players will be paying significant dividends and the driving fundamentals behind these stocks are still there. The SP's of the majors may be off 15 odd percent but so what, certainly no reason to liquidate long term positions and trading positions should have gone long ago. Personally I think Zinc will lag a bit behind Nickle for the time being, before another push in a month or two, much the same as the last time around.

Just my opinion and thats all I am offering, certainly not taking the high horse of expertise like yourself.... which certainly led to my assumption of youre 'small man syndrome', regarding youre spoutings

Cheers

 

[toothfairy]

Hi there everyone,

I am just wondering why ZFX & KZL prices behave so differently lately. KZL made profit annoucement today, was it that bad? Or people expect more.

ZFX seems to be back on an uptrend (didn't drop THAT much anyway) but KZL is heading down to test $6.00. Don't they both depend on the same price of Zn & both unhedged & low PE bla bla bla? Actually KZL said it has more exploration potential!
I am starting to buy back ZFX and am hesitant to touch KZL.
Does anyone know why? Is KZL a bargain @ this stage?

Cheers.

 

[rwkni1]

I guess a simple explanation would be from a valuation standpoint. ZFX has been trading around 4x FY06 earnings while KZL was around 8x, so it was much more expensive. KZL probably deserves to trade on a higher multiple given its superior production profile going forward, but maybe the market just deemed it too expensive. Also, KZL is expecting copper output at Thalanga, so earnings will be deflated by the fall in copper prices too.

 

[BREND]

I had posted the relationship between ZFX price against zinc & lead price in my blog:
http://basemetal-trading.blogspot.com/

 

[BREND]

China, the world's biggest producer and user of zinc, was a net exporter of the refined metal in 2006 for the first time in three years, reducing global supply concern that pushed prices to records. China exported 7,000 metric tons more refined zinc than it imported last year, and the country may be a bigger net exporter in 2007.

I mentioned a few times that China merchants have been exporting zinc to LME in huge amount. But I have seen that the pace of exporting had either stop or stop down.

 

[michael_selway]

China, the world's biggest producer and user of zinc, was a net exporter of the refined metal in 2006 for the first time in three years, reducing global supply concern that pushed prices to records. China exported 7,000 metric tons more refined zinc than it imported last year, and the country may be a bigger net exporter in 2007.

I mentioned a few times that China merchants have been exporting zinc to LME in huge amount. But I have seen that the pace of exporting had either stop or stop down.

Hi so are you bullish or bearish on zinc price in the months ahead?

thx

MS

 

[BREND]

Hi so are you bullish or bearish on zinc price in the months ahead?

thx

MS

I had turned from bearish to cautiously bullish, believe that zinc price is bottoming, but upside will not be huge, and will not be fast.
Unless copper has a strong rally.

 

[Kauri]

Zinc is at a veeeery interesting stage.... triple bottom on support..there again ABC says it should go lower.....

 

[michael_selway]

Zinc is at a veeeery interesting stage.... triple bottom on support..there again ABC says it should go lower.....

does triple bottom mean bullish or bearish?

thx

MS

 

[Kauri]

does triple bottom mean bullish or bearish?

thx

MS

http://thepatternsite.com/tb.html

 

[BREND]

Zinc price is up today at LME. Partly due to rise in copper, and fall in Zinc inventory.

 

[BREND]

Fall in zinc price at the end of Dec 2006 and early Jan 2007 is due to rising inventory level. This rise in inventory level is partly due to export of zinc into LME warehouse by China merchants.

However based on current lower price of zinc at LME, China merchants had stopped exporting zinc into LME, as the price of zinc in China is higher compared to that of LME. Hence we see that inventory level has started to fall since mid Jan 07.

I think that market is over pessimistic on zinc, price remains weak even though fundamental of zinc had improved.

As inventory level continues to fall, we should be able to see a recovery in zinc price.

Zinc chart shows that a reversal is possible:
http://basemetal-trading.blogspot.com/2007/01/possible-reversal-for-zinc.html

 

[Freeballinginawetsuit]

Hi Bend,

Well Zinc's not reversing ATM ,spot prices trending down again today.