zinc still above two dollars. , page-2

numbers I have a little free time before the PPI numbers and October retail sales numbers come out so here is my take on zinc...

You can look at numbers many different ways, so firstly lets look at what everyone is worried about. A slowdown in demand from China. On 25.10, I recorded available for sale in Singapore at 9500t. After about three weeks it is 9250t today. That's just 83t a week that has been drawndown over the last three weeks and I recall seeing daily drops in the order of anything from 500-1000t (although I don't monitor this as closely as I should). Food for thought. So clearly its slowed but buying has also resumed a little. The drop from 9500t to 9250t has been recorded in the last days or week, so there is the first positive. i.e. China is not flooding the market with excess zinc stock and are they are still buying. However, I'd like to see this ramp up by probably twice that again before I felt comfortable saying that excess stocks have been cleared and its a good time to buy. But I certainly don't see the present situation as a sign to sell or worry about it too much. At worst, this is a pause for breath, which most will agree that both zinc and ZFX probably needed and were due for. If the price rises too sharply in too short a period of time, you may actually get demand destruction through the delay or 'god forbid' cancellation of projects and nobody wants that.

Secondly, why has such volatity crept in again with wild swings up and down and is it over? What I see standing out at present is that fact that both gross stocks and on warrant have slowed but on warrant considerably. The numbers are:

Gross
24.08 - 180,000t (down 19,775)
25.09 - 147,450t (down 32,775)
25.10 - 115,650t (down 31,800)
to 14.11 (about 3 weeks - down 21,800)

On warrant
24.08 - 145,000t (up 6875)
25.09 - 127,850 (down 17,150)
25.10 - 86,600 (down 41,250)
to 14.11 - 82,675 (about 3 weeks - down 3925)

Its not rocket science to work out a correction was due but the fact that gross stocks haven't slowed as much means people are not cancelling orders. This means they are pretty confident that this is about as cheap as zincs going to get, so they continue to take delivery and with a resumption in Chinese buying that should pick up pace in a week or so, I see this as a minimum correction with perhaps a little more downside yet before the next move forward. How much downside is possible you ask? The UK price is $4,205 today (I think) and I have a stability point at $3,858 but I am leaning towards an upgraded figure of $4,108 or somewhere in between, so as you can see the correction will be minor.

Overall zinc is also currently suffering from weakness in other metals, however I think this is also short-term and they do not enjoy the solid fundamental position zinc presently has. Long-term nothing has changed.

Happy puntings.
JH