I am wondering what people’s opinions are of the ZINC price over the next 3 months. I have been trading for about a year (so I am novice) and am confused by recent contrasting reports for the supply/demand situation since 2007.
ATM, in the 3 month view I am bullish on Zn price for the following reasons, I would like to hear the opinions of others. I trade positions of around 30 to 120 days, sometime longer.
1) LME inventories have remained below critical levels for 2007 ( <100k tonnes). Whilst they have gone up from a low of 85k tonnes in Dec-06, this has been over a period where factories shut down over Christmas and mines continue to run (leading to inventory increases).
2) Up and till the start of 2007, analysts were generally bullish about the outlook for Zn in 2007, yet the price has dropped from US + $2.00 /lb to around US 1.40. From a supply/demand perspective, what has materially changed?
3) Many funds sold off Zn investments from their portfolios Jan-07 as they were over-indexed on base metals and needed to be re-balanced (which I imagine affect FX contracts).
4) This sell-off contributed to the losses of the 1bn Red Kite Fund in Jan-07. Question is how material is Red Kite in terms of the overall Supply/Demand situation for Zn?
5) Yes, new mines are coming online for 2007, but they are generally small volume, or have limited mine life and high cost. Are there any significant new mines that will have a considerable impact on the supply side?
6) Chinese Government have introduced a tariff on exports of Zn in attempt to reverse the fact that China was a net importer of ZINC in 2006.
7) My opinion, but I feel the Chinese have been smoke screening the demand situation for Zn for 2007 to push the price down since manufacturing is low this time of year. When production ramps up after Chinese New Year they are in a prime purchasing position and I expect LME stockpile to reduce in Mar-07.
8) Short-term – I am no economics expect but I would imagine Material exports from Australia are a major component of our current GDP and are influencing the historically highish AUD. Short-term, with a weakening in commodity exports have an influence on our FX rate?
In summary, aside from the short term events (for 2007 so far) I think nothing much has changed vs. 2006. Would like people’s intermediate view on this.
I hold ZFX, TZN, PEM, JML and Nickel on MCR and AGM. Topped up this week, but nearing a margin call so are concerned short term. Should I reduce my exposure on ZINC?
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