LONDON, July 7 The zinc funds-fundamentals pendulum has swung again. Back in May funds were beating a collective retreat from the London zinc market after a second failed attempt at the big-number $3,000-per tonne resistance level. The London Metal Exchange (LME) three-month price troughed at $2,427.50 on June 7, since when it has bounced back to a current $2,783.00.
Funds have returned with a vengeance, according to LME broker Marex Spectron, which estimates they have gone from net short at the start of June to net long. Indeed at over 20 percent of open interest speculative length is back to levels last seen in January.
What’s caused this sharp shift in positioning? The short answer is LME stocks. While the headline number continues to tick lower, now down by 146,600, or 34 percent, on the start of the year, “live” on-warrant tonnage has slumped to levels not seen since 2007.
There were 109,100 tonnes of net new cancellations over the course of June, leaving on-warrant inventory standing at a depleted 70,350 tonnes. LME time-spreads have tightened accordingly, the benchmark cash-to-three-months period CMZN0-3 trading close to level after being in relatively comfortable $19-per tonne contango just a month ago.
Disappearing visible inventory has rekindled zinc’s stop-start bull narrative of supply shortfall. LME inventory levels have been a false friend for zinc’s many bull admirers in recent times.