But then again.
http://www.metalsinsider.com/WIR/zn021006.htm
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But there was a key difference in the trading performance of the two metals and it may turn out to be significant. While the nearby structure of copper actually loosened significantly last week, that of zinc tightened right up. The benchmark cash-3s period contracted to level at Thursday's valuations before easing a little again to $5 contango at the end of the week. However, that was still a contraction from the $12 contango level seen the previous Friday and we heard the first suggestions of pressure on the cash date in the early part of the week.
The reason for this rare divergence between zinc and its bigger LME sister copper, we'd suggest, is the developing LME stocks picture. Zinc stocks have been trending steadily lower for many months now to the extent that each day brings a fresh cycle low. But last week also brought a sharp pick-up in cancellations, which is not something we've seen for some time. That's left every fifth tonne in the LME system in the cancelled category and promises a much faster rate of fall in the coming weeks.
Bull Signals
That was not the only bull signal generated by zinc last week. Camadian producer Teck Cominco warned of delays to concentrates shipments from its Red Dog mine in Alaska , sending a ripple of panic through an already tight concentrates market.
Fellow Canadian producer Breakwater Resources came out with a sharp downgrade of expected 2006 production, while two of China's biggest producers—Zhuye Torch and Baiyin--confirmed they have significant capacity downtime planned for October.
It's the sort of heady cluster of supply-side news that copper has enjoyed in the past part of its cycle but zinc hasn't.
The impact last week, however, was minimal since the zinc market still shows no signs of wanting to diverge from the red metal just yet in terms of 3-month price.
We still look for contrarian signals in this market but one of the two big ones last week—the shift in China back to net exporter in August—should be reversed again in September and October given the downtime at the two of the country's biggest producers.
The second bit of bearish news—the UK's ZincOx said it thinks Swiss trade house Glencore will look to restart production at the idled Tennessee mines in Q2 of next year—just adds to our sense that the market may be under-estimating the amount of new or restart mine capacity due next year.
Between now and then, however, there is still plenty of time for zinc to live up to the hype that has accompanied it all through the recent cycle. But having benefited so far from copper's own fundamental signals, it may now risk being stymied by the red metal's growing indecisiveness. Or is it just that all the “good news” is priced in at $3,300?
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