Commentary: Zinc rally over? Bears think so but spreads bite back – by Andy Home (Reuters U.K. – June 21, 2018)

LONDON (Reuters) – Is that it for the zinc rally? After hitting a 10-year high of $3,595.50 per tonne in February, the London Metal Exchange (LME) price has been sliding ever since. The retreat has extended to $2,946.50 so far on Thursday morning, the lowest level since August last year.

Expectations for one last bull hurrah have faded as exchange stocks have rebuilt, apparently calling time on the supply chain tightness that underpinned zinc’s two-year charge from the January 2016 low of $1,444.50 per tonne.

As ever with this particular metal, though, appearances can be deceptive, as shorts have just found out to their cost. Time-spreads across the front part of the LME zinc curve have tightened sharply over the last couple of weeks, a seemingly anomalous outcome given rising inventory.

LME zinc stocks, however, remain as unreliable an indicator of actual market dynamics as they ever were. They fooled bulls on the way up and they’re now fooling bears on the way down.


The LME’s benchmark nearby spread, covering the cash-to-three-months period, closed Wednesday valued at a backwardation of $42 per tonne. The tightness is not as extreme as it was at one point in October last year, when the same spread flexed out to a cash premium of $91 per tonne.

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