Zinc - The Metal for 2007

[toothfairy]

Metals had their strongest day for a long time, overnight: Zinc up about 6% and copper a shade more.

Rederob, I think you can help me with this. I posted this question before and I thought it was clarified but today I am confused again. It is to do with inconsistence in prices of Zn (or Cu) being posted from different sources.

As you mentioned that POZ & POCu went up about 6% overnight which means closing prices in LME which was about 4-5 am our time. This can be confirmed if you check it from Kitco.

Try looking @ www.baemetal.com and you will find they both drop from 24/05/07's prices / MT of $7375 (Cu) & $3655 (Zn) to 25/05/07's prices of $7145 (Cu) & $3610 (Zn). This is echoed by www.metal.com as well. How do you explain that? I know there are "official" & "closing" prices etc. but how can it be so much different. From up 6% to a down 1% quote.

Cheers

 

[BREND]

Rederob, I think you can help me with this. I posted this question before and I thought it was clarified but today I am confused again. It is to do with inconsistence in prices of Zn (or Cu) being posted from different sources.

As you mentioned that POZ & POCu went up about 6% overnight which means closing prices in LME which was about 4-5 am our time. This can be confirmed if you check it from Kitco.

Try looking @ www.baemetal.com and you will find they both drop from 24/05/07's prices / MT of $7375 (Cu) & $3655 (Zn) to 25/05/07's prices of $7145 (Cu) & $3610 (Zn). This is echoed by www.metal.com as well. How do you explain that? I know there are "official" & "closing" prices etc. but how can it be so much different. From up 6% to a down 1% quote.

Cheers

Of course there is a big different.

Official price is the closing price for 2nd ring, which is around 8pm Singapore time. And closing price is around 1am Singapore time, which is 5 hours away from 2nd ring.

 

[wayneL]

Metals had their strongest day for a long time, overnight: Zinc up about 6% and copper a shade more.
I know Radge does some good work with his charts, but unintelligible comments are not my cup of tea. Was he suggesting up or down near term: I guess he knows, but not saying is as useful as posting the chart itself.
I remain bullish, and even more so given the inability of technical traders to trash base metals thus far into May.

Red,

As I've said often before. Let your analysis stand without puerile comments such as that above. There is no need for it and it shows a lack of understanding of technical trading.

Cheers

 

[rederob]

Of course there is a big different.

Official price is the closing price for 2nd ring, which is around 8pm Singapore time. And closing price is around 1am Singapore time, which is 5 hours away from 2nd ring.

I found that a bit confusing.
The LME has three trading platforms - the open outcry market (ring trading), Inter-office telephone market, and the LME Select market.
During ring trading up to 11 ring dealers at a time trade each LME contract in specific 5-minute periods "rings" (based on the shape of the trading area).
The Inter-office telephone market is a 24 hour global market place transacted between member companies over the phone.
LME Select screen trading system is the LME's official electronic trading platform, where accredited traders execute trades electronically. There are about 100 traders involved in the LME trading.

All LME prices are quoted in US Dollars, but the LME permits contracts in sterling, Japanese yen, and Euros. Additionally, the LME provides official exchange rates from US Dollars for each of the other accepted currencies.

In more detail, open outcry trading begins at 11.45am. After a break, the process is repeated. The second part of this session results in settlement and official prices, at or near 1:15pm.
After official prices are announced, a period of trading called "the kerb" begins, with all contracts trading simultaneously. The second ring, or the afternoon session, begins at 3:20pm, following the structure of the first ring and ending with a 25-minute kerb period from 4:35pm to 5pm.
Sometimes quoted prices are based on the closing kerb, but this is not the "official" closing price.

LME ring trading runs for 5.25 hours and electronic trading runs for 18 hours, closing at 5pm and 9pm respectively. So these different trading sessions give rise to metals websites displaying different prices (apart from the fact that quoted prices during live trading are 20 minutes delayed).

 

[toothfairy]

Of course there is a big different.

Official price is the closing price for 2nd ring, which is around 8pm Singapore time. And closing price is around 1am Singapore time, which is 5 hours away from 2nd ring.

Ok & thanks Brend, you are getting closer to it, but that's not enough as I am a very scientific sort of person.(But no, I am not an accountant thanks!) Let's analyse the Kitcometal's most recent chart for Zn (since we are in the Zn thread now and yes, sorry I don't read the copper thread much). Last night Singapore time 8pm == N.Y. time 8pm and that should be the LME official close and the price was $1.610 which is not the same as $1.6375 quoted by the others. Isn't 2.75c significant enough if you have a milloin lb contract?

 

[rederob]

Wayne
Your "moderator" role allows you to delete my post in response to yours, yet your comment calling my comments "puerile" still stands.
How does that fit in with the sense of "harmony" you want to foster.
Especially given that my post "explained" the "technical traders" I was referring to.
There was nothing in my post in response to you that was deliberately offensive except that you have chosen to take it as a personal rebuke, which if you read carefully it was not intended to be:

I won't call you a moron Wayne, but I was actually referring to the Commodity Trade Advisers (or CTAs) that dominate price setting of LME contracts.
I suggest you pm me next time unless you are happy to throw eggs at you face.
I'm more than happy to defend what I say, even when I post in response to those "technical traders" that post here.

Wayne, it seems you have little or no understanding of the role of Commodity Trade Advisers and their influence on the price structure of metals traded on the LME. The CTAs advise the funds and the funds spend the big bucks that gives us our "official closing prices" via the morning's second trading session which is indicative of peak contract liquidity (as a rule).
Although the CTA's are mindful of market fundamentals, they "direct" the market up or down principally on technical factors.
I believe you would be aware of how powerfully a market can move when buy or sell stops are triggered and cascade on one another. The technicians "run" these stops and they remain an important consideration for any traders wanting to go long, or short the market.
Those that recall last May will know that funds bailed out of base metals (especially copper) en masse last year and "trashed" the market for months to come.
This, Wayne, is what I was talking about.
So before you get on your moderator high horse again, try to read the sense of what I was saying based on the market I was talking about: And not immediately assume I must be having a go at you or other technical traders.
Frankly, I think we both have bigger fish to fry.

 

[wayneL]

Wayne
Your "moderator" role allows you to delete my post in response to yours, yet your comment calling my comments "puerile" still stands.
How does that fit in with the sense of "harmony" you want to foster.
Especially given that my post "explained" the "technical traders" I was referring to.
There was nothing in my post in response to you that was deliberately offensive except that you have chosen to take it as a personal rebuke, which if you read carefully it was not intended to be:


Wayne, it seems you have little or no understanding of the role of Commodity Trade Advisers and their influence on the price structure of metals traded on the LME. The CTAs advise the funds and the funds spend the big bucks that gives us our "official closing prices" via the morning's second trading session which is indicative of peak contract liquidity (as a rule).
Although the CTA's are mindful of market fundamentals, they "direct" the market up or down principally on technical factors.
I believe you would be aware of how powerfully a market can move when buy or sell stops are triggered and cascade on one another. The technicians "run" these stops and they remain an important consideration for any traders wanting to go long, or short the market.
Those that recall last May will know that funds bailed out of base metals (especially copper) en masse last year and "trashed" the market for months to come.
This, Wayne, is what I was talking about.
So before you get on your moderator high horse again, try to read the sense of what I was saying based on the market I was talking about: And not immediately assume I must be having a go at you or other technical traders.
Frankly, I think we both have bigger fish to fry.

Thank you for clarifying your meaning and intent, though forgive me if I regard sections of your explanation as disingenuous.

The construction of your previous post left me with an entirely different conclusion as it left pertinent information out. You should be more careful with this and would have expected better from a self described intellectual such as yourself.

BTW moderating is not about high horses. It is a role we carry out in good faith and the best of intentions. It upsets some. que sera sera.

Cheers

 

[BREND]

Although the CTA's are mindful of market fundamentals, they "direct" the market up or down principally on technical factors.
I believe you would be aware of how powerfully a market can move when buy or sell stops are triggered and cascade on one another. The technicians "run" these stops and they remain an important consideration for any traders wanting to go long, or short the market.

rederob, yes CTAs who are the big players in the metal market are mostly technical traders, traders who are relying on fundamental to make his futures trading decision will not be making profitable trades.

Last time heard that you are an investment analyst, I'm thinking of switching my career to become an investment analyst in future. Can you give me advise on getting into this profession?

 

[rederob]

Last time heard that you are an investment analyst, I'm thinking of switching my career to become an investment analyst in future. Can you give me advise on getting into this profession?

It's amazing what people hear!
Did they tell you how much I earn?

 

[GREENS]

Red or Brend, could either of you please tell me when valuing zinc stocks, do you base production numbers (i.e. tonnes or zinc production) on a companies zinc concentrate or contained zinc?

For example: in CBH’s 1Q 07 report they had zinc concentrate production of 28,200t with contained zinc of 14,500t. Which of these production numbers is multiplied by an average zinc price for a current or forecasted period in order to get a feel for the companies’ revenue generation?

 

[BREND]

It's amazing what people hear!
Did they tell you how much I earn?

Actually you told me that you are an analyst.

 

[rederob]

Red or Brend, could either of you please tell me when valuing zinc stocks, do you base production numbers (i.e. tonnes or zinc production) on a companies zinc concentrate or contained zinc?

For example: in CBH’s 1Q 07 report they had zinc concentrate production of 28,200t with contained zinc of 14,500t. Which of these production numbers is multiplied by an average zinc price for a current or forecasted period in order to get a feel for the companies’ revenue generation?

Only count the "metal".
The concentrate has other metals (byproduct) and these may be significant within the concentrate. For example, look at how Oxiana accounts for its "zinc price" costs at Golden Grove. Elsewhere I recall recently reading that Newmont's Batu Hijau copper-gold mine in Indonesia was producing metal in concentrate at minus 19cents a pound (sorry, I can't find the article) after the gold credit.
Kagara's polymetallic circuits make accounting for its zinc quite difficult, so one needs to rely on its "guidance", as this gives an idea of ore sequencing.
Presently Kagara is weighing more into its copper, which now seems a good thing given copper's recent spike higher.

 

[GREENS]

Thanks for the detailed response red, it is much appreciated. Just to clarify your point because I am still not 100% sure; you value a company based on its contained zinc (or actual metal), but must also take into account any profitability that may occur as a result of particular byproducts or other metals found in the concentrate (which in fact will vary from mine to mine and hence company to company)?

It’s has been relieving to finally see LME inventories continue there decline after the short term rise we saw early this year. I believe if we see a continuation of falling inventories, there is a good chance that there will be a spike in the zinc price sometime in the short to medium term and is just a matter of patience for the time being. With LME inventories over the past 30 days dropping at a rate of approx 680t/day and recently surpassing previous inventory lows of late 06, when at this point in time the POZ was over $2/lb, it appears that zinc is fundamentally strong at present.

If there is any positive correlation to what happened with nickel when inventories draw downs approached realtively low levels, and the actions of zinc, then we could possibly see the POZ follow a similar (in % terms) rise, as long as inventories continue to fall constitantly.

Red I am interested in your thoughts on this as I am still in the process of learning:

•If inventories continue to fall, around what inventory level would you consider being critically low or relatively low levels that could trigger a spike to occur (if in fact the situation does arise)?
•One other thing I have done an analysis on the possible movements in the zinc price based on the past movements of nickel (assuming a near perfect correlation), do you think there is a fairly strong positive relation ship between nickel and zinc (i.e. use nickel as a guide to how zinc may perform if inventories continue to fall or reach critical lows).

Greens

 

[Captain_Chaza]

Ahoy Officer Red Rob

As you know I am just an Old fashioned Seaman who sails with NO fundamentals
However I learnt long ago that most explorers set out to find a certain metal

It was found in those early days that there were either Lead- Zinc deposits
Nowadays you would call them Zinc-Lead deposits

It was also found there were Gold- Copper deposits
Nowadays you would call them Copper- Gold deposits

It has also been documented that some explorers set out to find Oil but only found Gas

Diamond Joe Gutnick was told by his chief rabbi in NY that if he went to WA he would find Diamands
Unfortunately he didn't and only found Gold and lots of it (GCM)

My point is
Mother Nature has a funny sense of humour when it comes to Commodities and Fundamental Analysis and in particular when these explorations are "Well-costed and planned in advance"

Salute and Gods Speed
NB: "The Wind Calls the Tune"

 

[Col Lector]

Gidday Zincers,
While we are cruising the world.....
This article sourced today has some potentially big implications for zinc....in both the short-term supply(Russian as a net exporter), and longer-term when the doubling of demand predicted for construction/automotive materialises.. Thoughts??


Newsmaker: ChTPZ Group
Headquarters: Moscow
Date: 29/05/2007
Length: Approx. 660 words
Category: Metals & Mining

Stock Symbol: N/A
Stock Index: N/A


Chelyabinsk Zinc Plant Commercial Director Forecasts Russian Zinc Consumption and Production to Grow

MOSCOW (RNWire) - In the next five years, zinc consumption in Russia may nearly double (up to 400,000 tons), stimulating domestic zinc mining and refining, Chelyabinsk Zinc Plant (CZP) (RTS: CHZNG, LSE: CHZN) Commercial Director Berislav Galovich said at the 11th Zinc and Its Markets seminar held in Madrid by Metal Bulletin.

Addressing conference participants, Mr. Galovich described the current zinc industry situation in Russia and the CIS states, as well as its past and forecasts for the future. In particular, he noted that the majority of producers have successfully overcome the difficulties of the transition period and are ramping production up. Thus, in 2006, zinc production in Russia made about 236,000 tons, whereas the total production level for all the CIS countries almost reached that of the 1980s (750,000 tons annually). The largest zinc producers in the CIS are Chelyabinsk Zinc Plant (production output 148,384 tons in 2006) and Kazzinc Plant (Kazakhstan) (production output 289,000 tons in 2006). CZP is the only zinc plant in the CIS producing SHG zinc confirmed by LME certificate, Galovich pointed out.

According to the CZP Commercial Director, production of zinc concentrate in Russia began to rise in the second half of 2006. By year end, Russian mining companies had produced 171,000 tons of zinc concentrate. Russia possesses 17% of world zinc reserves (approximately 45 million tons) and the two largest zinc deposits in the world (Ozyornoe and Kholodninskoe, Republic of Buryatia). Considering today's high prices for zinc and growing demand for the metal in the world, greater interest by investors in exploration of these deposits is expected, allowing a doubling of zinc concentrate production in Russia in the coming 5-7 years, the spokesman said.

Zinc consumption in Russia in 2006 reached 174,000 tons, compared with 900,000 tons annually in the Soviet days. The significant difference in consumption is due to decreased supplies to the military industry, Berislav Galovich explained. In Russia, most zinc (over 60%) is used for the production of galvanized steel, mainly for the automobile industry and construction. According to the CZP Commercial Director’s forecast, in comparison with 2006, construction volumes will increase by more than 50% by 2010, whereas automobile production in Russia will double by 2015. Beyond this, there is a substantial potential that zinc consumption in such areas as alloy production and usage in the chemical industry will increase.

Despite increasing zinc consumption within the country, Russia remains to be a zinc-exporter. This is due to production exceeding consumption (by 62,000 tons in 2006) within the country, as well as increased competition with Kazakhstan and Uzbekistan producers. Mr. Galovich noted that in 2006 Russian enterprises began to pay more attention to the export sales. Also there appears to be a trend to replace exports to the spot market with long-term contracts with foreign customers.

In his conclusion to the report, Berislav Galovich again drew the audience's attention to the main structural changes which have happened lately in the industry, as well as the investment requirements. In particular, among the changes he pointed out privatization in the industry, integration with the copper producers and the vertical integration of mines and smelters. According to the CZP Commercial Director, among the future investment requirements there are: greater availability of Russian investment capital, higher credit ratings of zinc producers, and readiness of foreign investors/partners to take part in mine and smelter construction projects, as well as partnership among producers aimed to improve project management, operations management and introduce technical innovations.

About Chelyabinsk Zinc Plant

Chelyabinsk Zinc Plant OJSC is a leading Russian zinc producer. It is responsible for approximately 60% of Russian zinc production volume. In 2006 the plant produced 148,384 tons of SHG zinc.
52.34% shares of CZP belong to ”NF Holdings B.V.” (Netherlands). 50% shares of NF Holdings B.V. belong to Arkley Capital S.à r.l., Luxemburg.
Ordinary shares of CZP are traded on the RTS exchanges, under ticker CHZNG, and Global Depository Receipts (GDR) are traded on the London Stock Exchange under ticker CHZN.




About ChTPZ Group

ChTPZ Group consists of Chelyabinsk Pipe Plant OJSC (RTS: CHEP), Pervouralsky Novotrubny Zavod OJSC (RTS: PNTZ), ChTPZ-Complex Pipe Systems (maintenance company), two metal trading companies, MeTriS and TIRUS, and ChTPZ-Meta, a company specializing in scrap metal collection and processing. Total turnover of the Group exceeds US$2 billion. Arkley Capital S.à r.l., Luxembourg, manages ChTPZ Group’s assets.

 

[rederob]

•If inventories continue to fall, around what inventory level would you consider being critically low or relatively low levels that could trigger a spike to occur (if in fact the situation does arise)?
•One other thing I have done an analysis on the possible movements in the zinc price based on the past movements of nickel (assuming a near perfect correlation), do you think there is a fairly strong positive relation ship between nickel and zinc (i.e. use nickel as a guide to how zinc may perform if inventories continue to fall or reach critical lows).

Greens

Greens
There are 4 main levels of supply:

1. Exchange holdings (LME & Shanghai)
2. merchant inventory
3. Producer inventory, and
4. Consumer inventory

"Balances" of "excess metal" differ markedly by commodity type, so there is no rule I would rely on.
For example, a measure of aluminium metal availability/tightness is the change to "Japanese port stocks".
That said, exchange inventories are a transparent measure of supply, and also present consumers with a reliable pricing mechanism. So when exchange inventories go below a week's consumption, consumers get worried and need to ensure they don't get caught short.
Prudent consumers will ensure they maintain stock to maintain production to meet all known orders. Other consumers will go hand to mouth, as it were, buying only when their customers need to be fed.
It's the hand to mouth feeders that drive the prices through the roof, and cause the continuing cancellation of warranted metals that maintain the fundamentals.
My suspicion is that the next big price movement will occur when zinc inventories drop below 50k tonnes. Until then it's more likely we get whipsawing, with upside bias.

In relation to trying to correlate zinc with nickel, good luck.
My view is that the patterns will give us strong clues, and if there proves to be a strong lagged relationship, then I will be happy with my holdings of zinc equities.

 

[BREND]

I've asked my clients to short zinc futures today.

 

[Kauri]

MI WEEK IN REVIEW: Any expectations that we had seen the worse of the fund-selling storm were last week dashed with new waves of liquidation from technical and systems-based funds washing over the LME complex.

Somewhere behind the day-to-day noise of the market-place there is a sense that zinc’s underlying dynamics are shifting from short-term negative to short-term positive but while the black-box players are in the ascendancy, fundamentals must take a back seat.

Here We Go Again
After several days of successive fund-induced pain the previous week LME 3-month zinc had staged an end-week bounce to close Friday, May 18 at $3,720.

Last Monday saw that bounce extended to $3,790 with opportunists and other coat-tail hangers covering back short positions. The tentative recovery continued on Tuesday morning with a retest of a former resistance level at $3,835. However, just as the bulls were preparing to put their heads back above the parapet, they were sent running for cover by a new round of fund selling.

It swept through the LME complex in successive waves over the next three days sometimes exacerbated by volatility and poor liquidity as London locals got out of the way of what one called “the freight train”.

The selling action climaxed on Thursday afternoon, LME 3-month zinc following copper and sinking to a low of $3,540, where it found support from the 100-day moving average.

As in the week before, Friday brought the reaction to the action with a tentative recovery to $3,640 by the day’s close. It was a third successive week-to-week loss, although the $80 given up was smaller than the previous week’s $330 net loss. That said, zinc is now showing a year-to-date net loss of 13.95% having missed the early-year bull party and now being hit by the overspill of selling in the likes of copper.

This mass shift in positioning by the funds seems to have been triggered by a combination of seasonality (“sell in May and go away”), portfolio re-weighting (no coincidence in our mind that this sell-off started around the time of the last meeting of the US Fed’s interest-rate-setting committee) and technical performance (an over-extended copper market in particular).

In the case of LME zinc it has seen the likes of the CTA systems-based funds switch from collective long of around 20% of historic capacity in early May to around 10% collective short as at the end of last week. Such a turnaround is equivalent to something like 375,000t of metal.

China Switch
Such funds do not trade off the market’s fundamentals, so trying to find a reason for the recent sell-off in the market’s underlying dynamics is like trying to hammer a square peg into a round hole.

However, zinc’s earlier underperformance relative to most of the rest of the LME complex is easily explained by the fact that China had been pumping metal out into the world market since the end of last year.

That has served to cloud the other dynamics at work and, not surprisingly, left everyone a bit confused as to where zinc really is right now. The best sound bite of the industry conference underway last week probably came from Al Paterson, a trader at Ocean Partners in the US: “Before China, I used to have faith in my forecast--now all I do is worry about China.”

Both the International Lead and Zinc Study Group and the World Bureau of Metal Statistics have pegged the refined zinc market as being in surplus in Jan-Mar to the tune of 84,000t and 119,000t respectively. But be warned that both calculations will overly reflect low apparent consumption in China caused by the impact of those high exports.

As such, the key development in zinc’s fundamentals is the switch back by China to net importer of zinc in April.



This does not seem to have had anything to do with the most recent adjustment to the export tariff regime””the 5% rebate on SHG zinc was left unchanged””but more an end to what appears to have been a major de-stocking cycle, encouraged by high prices late last year and favourable price arbitrage.

The removal of that metal cushion now seems to be feeding through into a renewed downtrend in LME warehouse stocks of zinc, which are punching out fresh cycle lows with each passing day. In this context, the nearby market structure””cash-to-3-month metal flipped into $1 contango at Thursday’s valuations before returning to $5 backwardation on Friday””continues to look anomalous.

It is by no means certain that Chinese exports won’t pick up again if the price is right, but it seems unlikely they will hit the sustained pace seen over the Nov 06-Mar 07 period.

Similarly, although new mine capacity is starting to build, it is doing so only slowly and being mitigated by production losses such as that we mentioned in this column last week at Australian producer Perilya.

This market remains finely balanced, not that you’d know that from the waves of technical selling that have hammered it for the past two weeks. The “black-box traders” follow their own price drivers, not fundamentals. As with coppeit may be a case of “caveat venditor”…”seller beware.”

 

[Captain_Chaza]

I've asked my clients to short zinc futures today.

Did anybody listen to you?

In the Good Old Days (30+ years ago) we used the "Singapore/KL Model"
ie. Tell half your clients to Buy
Tell the other half to Sell

What ever happened we knew we could never lose all of our client base

"Safety at Sea was Paramount in those days"

I think these sort of tactics are illegal nowadays?
I wonder if it was legal in those days?
Hmmm!

Salute and Gods Speed

 

[toothfairy]

I've asked my clients to short zinc futures today.

I beg to be different, I bought more ZFX shares today