Three months of LME downward trend completed

Further to today's post from djr on the Goldman Sachs upward revision of their predicted price for zinc in 2016, I believe this quote is telling:

Goldman’s endorsement adds to a chorus of bullish forecasts from producers amid expectations that global supply will trail demand. Commodity giant Glencore Plc said this month that structural deficits are now returning, led by zinc, while Vedanta Ltd.’s Tom Albanese said in April that zinc had the best fundamentals of any LME metal. Zinc, used to galvanize steel, will get a boost as China spends more on infrastructure, two major mines were depleted and some producers cut supply, according to Goldman.

A few observations reinforce this view:

1. Expect the report was compiled during April, and in May the deficit has become even more apparent
2. Today marks three months since LME inventories started their decline from 504,375 to 387,350 (-1125 today) http://www.westmetall.com/en/markdaten.php?action=show_table&field=LME_Zn_cash
- 117,000 tonnes, close enough to 1/3rd of the remaining LME inventories
3. At the same time the zinc inventories in China during the last two months have been declining at around 10,000 tonnes per week to be now 350,700 see http://www.metal.com/site/search?cond=zinc inventories&yt1=
4. In both cases, at this rate, inventories will be close to zero by the end of 2016 Not saying this will transpire, stuff will come out of the woodwork, but clearly there could be some scrambling.

Goldman Sachs state elsewhere in the report “We view zinc as the bullish exception in the metals space, and remain very bearish on the outlook for the other base metals prices, most notably copper and aluminum, where we see very strong supply growth” in the second half, the analysts wrote. “Zinc has by far the most bullish supply-side dynamic.”

The base metal markets are beginning to diverge with zinc performing noticeably better than the other base metals over the last  60 days, and particularly the last 30, during periods of recurring Chinese economy doubts and news that US is likely to raise interest rates in June:


This divergence is likely to widen as the inventories continue to decline - the deficit is real this time it seems.

My belief is zinc will get above 90c per lb before we receive the Mining Licence, where upon the price of zinc shares in general will begin to motor - the Mining Licence should give us that little more turbo charge effect.

We could be very well see the end of 4c quite soon and if those CR short termers have exhausted their holdings, then just look back at the charts to see how the IBG share performs with zinc in the 90c and by end of year, over $1 again - 10c in short order is not beyond the realms.

Glad to be BIG with IBG