Zinc the metal for 2006

[clowboy]

one thing that would have some influence is that while zinc stocks are up over the last 3 months they are still well down over 6 months, this prob has some influence on ppl

 

[rederob]

I know this is the Zinc thread. But what are posters thoughts for ZFX & KZL come Monday? Considering the rest of the market appears stable, and after after such a big fall in Zinc?

They might fall.
They will fall.
They might not rise.
All of the above!
The question is if it's time to now sell and cut losses, or possibly buy back into an oversold market.
Bloomberg keeps reporting about base metals having strongly rising inventories.
So below is the LME 5 year chart for zinc: By most standards the market reaction when compared to the inventory trend is a bit overdone.
That does not mean the market is wrong, just that there will be an upward correction later in the week.

 

[rederob]

Whoops - forgot the chart so deleted prior post...

Note the below chart for LME 5-year copper:
Copper prices did not peak in 2005, when inventories "bottomed".
Prices were higher a full year later.
The effects of backwardation and destocking take a toll on metal prices well after the shift from contango.
I can't guarantee zinc prices will rise, but I can assuredly say that all things being equal there will be a very subdued rise of LME zinc inventories this year, if at all.
That will only change if/when steel consumption fall off the rails.
I will not be selling ZFX this year as I have a reasonably safe entry price, and the stock will continue to give good dividends even if zinc is half today's price.
But that's not the main reason.
I have a very long term view, and while we have a hiccup in prices at the moment, the biggest and best producers, with strong projects in the pipeline, always add value down the track.
If I was on one of the many near term zinc producers, I would have sold in late December, when the technicals and fundamentals suggested "danger" in the near term, and then looked at a later buy back.
That said, nickel looks like holding stronger prices for longer than most other base metals, and it would be there that my $$$s would be spent after it hits a similar 10% price collapse, which it should at some point in coming months.
Otherwise add PDN on its next big dip.

 

[Kauri]

Hi Red,
I'm not too sure the zinc price is related to the inventory levels this time. Word has been circulating quietly for a little while that a hedge fund was under pressure on its metals book. Last night seems to be verifying the rumour. Look at the vol and price for forward zinc contracts over the last three days, nearly double ave vol on falling price, someone wanted out. What would be interesting would be to see who bought for instance last night, other hedge funds, CTA's, or maybe end consumers... if it was end consumers then a chunk of the zinc metal locked up by the funds has been freed up and transferred to the end user.... what would that spell for future inventory levels?? I am leaning towards a period of volatile instability, similar to gas when that fund folded a little time ago.
The big question is whether the funds that have other sections of the metals complex tied up are also going to have problems sooner or later???
As for Zinifex, (zinc and lead producer), I'll be staying short for a little while yet.
Cheers... Kauri

 

[toothfairy]

I was always a bit dubious about the rumour of Chinese destocking/restocking in Zn price manipulation. Particularly when it was mentioned in the news. Chinese learnt very quickly from western world (especially USA) that you must not let your rivals in business to know exactly what you are doing. That's a universal business rule. I was very surprised that any rumours from China that filters to us could be true. Until now.......
I think the hedge fund Red Kite could be a Chinese fund in disguise. Firstly, no western company will use such a dodgy name for a fund. "Red" means HOT, DANGER & DEFICIT or LOSSES, and as for "kite", any 4 year old kid can tell you that will crash sooner or later. But for the Chinese, "red" represents luck and profit, whether it be red kite, red lantern, red fire crackers or red roast duck. And they all hanging high up for even better feng shui.
Chinese do things differently, red is good and black is bad. Traditional handwriting starts from upper right corner and goes down. Dates are mentioned Year/month/day etc.
May be when they say destocking means restocking & vice versa.
Anyone wants to bet they were restocking heaps @ $1.4 last night?

 

[BREND]

Fall in zinc price is partially due to news that zinc market will be in surplus this year. Not all experts agree with this though.

The crash yesterday is hedge funds using this news as an excuse to dump zinc futures. As mentioned earlier, funds have been selling zinc call options at strike $3800/mt & $3700/mt for the past 1 week.

Zinc market in China has actually improved, and zinc price in China has actually been rising. Whereas zinc price at LME is falling sharply. Do you call that an opportunity?

As investors of Zinifex, unless you are on margin trading, we can always wait for zinc price to come back up again, time is on our side. Even when zinc price is at $3200 - $3500 level, these zinc miners are still enjoying a fat margin.

Don't forget that Zinifex is also a lead miner, lead is my top pick for 2007. Lead price is still stable. Though lead only made up a smaller portion of Zinifex revenue, but it does help to support share price when lead price is going up: http://basemetal-trading.blogspot.com/2007/01/zinc-share-price-vs-zinc-and-lead-price.html

Teck Cominco and Zinifex, being no 1 and no 2 zinc miners might just slow down their zinc production, hence avoiding a surplus in the zinc market.

Another reason is also because the market knew that Red Kite is holding on to long position in copper, and hedge funds team up to destroy this fund. Crash in copper price naturally pulls down rest of base metals.

Metal market is a cruel and merciless market, when they see blood, they attract sharks. And the sharks are fierce, fast and deadly, as we can see yesterday.

Eventually all this hooha will end, market will stablise, as long as zinc inventory start to fall again, zinc price will recover again.

Just some of my thoughts.

 

[drmb]

...... Until now.......
I think the hedge fund Red Kite could be a Chinese fund in disguise....

Hmmm, don't thin so - Red Kite is run by Michael Farmer, Oskar Lewnowski and David Lilley.Red Kite fund purchased base metals and had advanced about 108 percent through September - more info needed I think before sepcualting it is Chinese!

 

[EasternGrey1]

Metal market is a cruel and merciless market

Aren't they all??

 

[exgeo]

You gotta laugh at some of the crap written by the journos on the subject of metals. For example "LME nickel stocks have doubled over the past month" but with no context. Yeah, doubled from a days' worth of consumption, to 2 days for example!

 

[rederob]

Hi Red,
I'm not too sure the zinc price is related to the inventory levels this time.
...
Cheers... Kauri

Kauri
I don't think the short term price is ever well correlated to inventory levels.
However, if you compare inventory and price levels of all the base metals over recent years there is a trend that is undeniable.
So my view, whick BREND also shares for what it is worth, is that zinc prices are likely to recover.
Just as the Amaranth fund tanked US gas prices, red Kite has impacted zinc. Please take a look at US natural gas prices (http://www.wtrg.com/daily/gasprice.html) to see how temporary these influences can be.
If you, Kauri, are going to remain short, my bet will be that your position changes before Wednesday.
Good luck.

 

[Kauri]

Kauri
I don't think the short term price is ever well correlated to inventory levels.
However, if you compare inventory and price levels of all the base metals over recent years there is a trend that is undeniable.
So my view, whick BREND also shares for what it is worth, is that zinc prices are likely to recover.
Just as the Amaranth fund tanked US gas prices, red Kite has impacted zinc. Please take a look at US natural gas prices (http://www.wtrg.com/daily/gasprice.html) to see how temporary these influences can be.
If you, Kauri, are going to remain short, my bet will be that your position changes before Wednesday.
Good luck.

Red,
My short will remain open as long as ZFX trends down, the market action will close it for me, be it wednesday next week or wednesday next month. Incidentally, the price in your gas chart tanked with Amaranth from $8 to $4 over 4-6 weeks, it is now getting back to where it was after 4 months of volatility.
Cheers
Kauri

 

[chops_a_must]

I'm having trouble finding what were the final prices and percentages for the base metals. Can anyone help me out here?

 

[drmb]

I'm having trouble finding what were the final prices and percentages for the base metals. Can anyone help me out here?

Not sure if this is what you want http://www.kitcometals.com/ is where I always start and then there are live and historical charts for all base metals

 

[chops_a_must]

Not sure if this is what you want http://www.kitcometals.com/ is where I always start and then there are live and historical charts for all base metals

That's what I usually use. But everything was saying close to no change which I know isn't true. I just went to the bloomberg commodities bit, but that only has the 3 month contract, not the spots... I think.

 

[drmb]

That's what I usually use. But everything was saying close to no change which I know isn't true. I just went to the bloomberg commodities bit, but that only has the 3 month contract, not the spots... I think.

I think the kitcometals 24 hour spot is the NY not the LME price, and the NY price % resets itself at cob, ie 4pm NY time. It's not a 24 hour moving percentage. Could be wrong on the exact time but it does reset at some time after close so that is why it was showing 0.00%. If you had been up 4am you would have seen double digit neg, not a pretty sight. Never seen that before.

 

[drmb]

Didn't we see this sort of drop 1.7 - 1.4 last year? May - July?

 

[Damuzzdu]

That's what I usually use. But everything was saying close to no change which I know isn't true. I just went to the bloomberg commodities bit, but that only has the 3 month contract, not the spots... I think.

Chops,

I can tell you that closing cash prices from LME. (US$/tonne)

Official 3269 (taken 13.05pm London time)
Unofficial 3030 (4.17pm London)
Close 3090 (not sure of time not published on basemetals)

The fall started early Friday morning London time. Maybe some traders/hedge funds were aware of Red Kite Problems before the general public knew of it???

When news of Red Kite problems started hitting major internet website like WSJ, Reuters etc the selling just accelerated. The Reuters news story was published on their website at 2.20pm London time can you see the dramatic fall that started just about that time. The WSJ article appeared before the Reuters article, so this would have seen by many that have DOW Jones news headlines tickers going across their screens.

This obviously started the selling and it just got bigger as the afternoon wore on.

Cheers
Muzz

 

[toothfairy]

Official 3269 (taken 13.05pm London time)
Unofficial 3030 (4.17pm London)
Close 3090 (not sure of time not published on basemetals)

Muzz

Can you explain the differences of them please, which one should we take notice of most seriously.

 

[Damuzzdu]

Can you explain the differences of them please, which one should we take notice of most seriously.

The official price is the one you will see quoted on many websites. It is taken after the AM Kerb, at around 1.10pm London time. It is like a "poll" of 11 firms that deal on the LME.

However, all the metals then resume trading for the afternoon ring sessions, until the PM Kerb when you get the unofficial prices. This normally happens around 4.15pm London time.

Trading thou is continuing all the time on "Select" the electronic trading platform for metals on LME until 5.00pm London time when the closing prices are published.

Thus I normally am much more interested in the PM kerb prices and the close than the official prices which is taken really far too early. However the AM Kerb trading is very traditional on LME, that is why you see it used widespread.

It is very similiar to the AM & PM London Gold fixes. But, as we all know Gold is now a 24hr trading commodity across the whole week, so these fixes start to lose their usefulness.

Trust this helps.
Cheers
Muzz

 

[toothfairy]

The official price is the one you will see quoted on many websites. It is taken after the AM Kerb, at around 1.10pm London time. It is like a "poll" of 11 firms that deal on the LME.

However, all the metals then resume trading for the afternoon ring sessions, until the PM Kerb when you get the unofficial prices. This normally happens around 4.15pm London time.

Trading thou is continuing all the time on "Select" the electronic trading platform for metals on LME until 5.00pm London time when the closing prices are published.

Thus I normally am much more interested in the PM kerb prices and the close than the official prices which is taken really far too early. However the AM Kerb trading is very traditional on LME, that is why you see it used widespread.

It is very similiar to the AM & PM London Gold fixes. But, as we all know Gold is now a 24hr trading commodity across the whole week, so these fixes start to lose their usefulness.

Trust this helps.
Cheers
Muzz

Thanks Muzz. that piece of info is very helpful and it explains neatly why there are so many quotes (sometimes quite gappy as it was on Friday!). I asked this question many times and is answered now.