It's an impressive decrease in inventory levels and at some point you'd think it'll create issues.
The chart below is probably a better visualisation as it shows a more historical context. Note that in 2006, Zn inventories at the LME actually reached a low point of 68kt ... well below where we currently sit at 193kt.
The price for Zn actually peaked prior to the low point of inventories at US$4,514 when inventories were at 87kt (but still falling).
For RVR, Pb is also an important commodity and this too is experiencing warehouse declines. Put into the same context warehouse levels are declining but have a way to go to reach the historical lows of 2006.
There may well be industry differences now vs. then - e.g. Chinese based warehouses have an increased market share - and we know that the market is less than transparent.
Two things are clear, however:
(1) Prices and LME warehouse inventories have a negative correlation, overall (note the Pb correlation at various times however)
(2) Inventory levels are falling for both Pb and Zn and have been for sometime, suggesting a semi-structural element to this.
Glencore, the gorilla in all of this, looks to be managing supply in a disciplined manner to avoid a supply spike and thus price crash for the metal.
RVR as a current producer with excess mill capacity should be a beneficiary of this dynamic in the near term.
Cheers
John
RVR Price at posting:
27.0¢ Sentiment: None Disclosure: Held
