LONDON (Reuters) – Zinc on Monday morning hit a fresh decade high of $3,180.50 per tonne on the London Metal Exchange (LME). Zinc bulls have been waiting a long, long time for this moment. A slow-fuse narrative of a looming supply crunch has been simmering for years but has finally burst into explosive price action.
True, London zinc has been given a helping hand from Shanghai, where speculative froth seems to have spilled over from the iron ore and steel markets to the base metals complex.
And also true, a supply-side response to high zinc prices is already starting to build with old mines such as Thalanga in Australia being brought back out of mothballs and speculation mounting as to how long Swiss producer and trader Glencore will wait before reversing the production cuts it announced in 2015.
But right now the LME zinc market is bubbling away with stocks falling and spreads tightening. Volatility seems assured but can zinc return to the heady days of late 2006/early 2007, when the price peaked out at $4,580? There are a few believers, judging by some of the higher strikes trading in the zinc options market but the overall options landscape suggests collective bull positioning is much less ambitious.
The zinc raw materials market has been tightening for many months thanks to the closure of exhausted mines such as Century in Australia and Glencore’s 500,000 tonnes of annualized cutbacks. But until very recently any flow-through impact on the refined metal part of the zinc supply chain has been elusive.
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