Feb 19 (Reuters) – Not so long ago, zinc and lead were the “ugly sisters” of the London Metal Exchange (LME) base metals suite, both burdened by consecutive years of surplus and high inventories.
The peak of the commodities super-cycle has come and gone, and you’d be hard pressed to discern its passage through the prism of these two industrial metals. With no spectacular bull runs such as seen in copper and iron ore, they went through a long, long period of largely sideways grind.
Sentiment is now changing, particularly for zinc, which is currently the “belle of the ball” on the LME. Three-month zinc was the best relative performer last year, an act it is repeating in the early part of 2014.
This turnaround in fortunes appears to be borne out by the latest figures from the International Lead and Zinc Study Group (ILZSG), assessing both markets as shifting to production-usage deficits in 2013. It was the first year of lead deficit since 2009 and the first year of zinc deficit since 2006. The previous sentence should probably include the word “probably”.
Right now, the LME “Street” is expressing its bullish views by playing the two sister metals off against each other, a relative play that currently favours zinc.
Left to one side, however, is the nagging question of where all those legacy stocks have gone. It is possible that there is still an ugly side to both Cinderellas?
DEFICIT … PROBABLY
ILZSG calculates that the refined zinc and lead markets recorded a production-usage shortfall of 60,000 tonnes and 20,000 tonnes, respectively, in 2013.
These, it is worth stressing, are marginal outcomes in what are 13 million and 10.5 million tonne global markets.
Moreover, not everyone is in agreement.
“Disconcertingly, our sources still differ greatly on the recent market balance,” observes Stephen Briggs, an analyst at BNP Paribas, in a recent research note on zinc (“Zinc transitioning from rattle to hum,” Feb. 12, 2014).
“Wood Mackenzie has world refined demand exceeding production by over 650,000 tonnes in 2012-13, whereas CRU has a balance in 2012 and a surplus in 2013, with ILZSG data the other way round,” he explains.
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