LONDON (Reuters) – Historically low stocks of zinc in London Metal Exchange registered warehouses are likely to fuel price volatility and confound those investors looking at an oversupplied market and expecting significantly lower prices.
Stocks of zinc in LME warehouses are close to 20-year lows at around 50,000 tonnes, having been on a downtrend since October 2015 when mining giant Glencore (GLEN.L) shut 500,000 tonnes of capacity because of low prices.
The low stocks come at a time when many market participants are expecting to see a supply surplus this year after several years of deficits, which would be bearish for prices of the metal used to galvanise steel.
Those betting on lower prices – short positions – will typically sell and buy it back at a lower price before the contract matures or make a physical delivery. But low stocks mean a shortage of zinc on the LME market.
“The scramble to cover shorts mean price spikes even though there is no real shortage,” said a Europe-based zinc trader. “LME inventories are artificially low, there are stocks off exchange, but higher prices are needed for that metal to turn up in exchange inventories.”
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