Zinc futures resume upward rally

Wednesday, May 13, 2015

Three month LME zinc futures rallied for a second day, climbing back towards $2,375/tonne after adding almost 2% yesterday as prices continued to recover some of the previous week’s losses. Stockpiles of the metal, most commonly used for galvanizing steel have fallen substantially since the start of the year, almost 36% since January 1st as fundamentals swing further off balance. The metal held in LME warehouses has experienced 26 straight days of outflows with prices rebounding off of March lows towards $2,000/tonne as a result, rallying 20% towards $2,400/tonne earlier this month. With the zinc market facing a potential shortage in 2015 as demand outstrips supply for the remainder of the year and a lack of investment in new capacity significantly limits supply growth we could see prices gain further upside potential in the coming weeks. The front end of the curve has moved from contango into backwardation as demand for immediate delivery grows and with few large-scale mining projects in the pipeline the market could be dominated by shortages in the coming quarters.    

The Bank of England cut its growth outlook for the UK in its quarterly inflation report, revising downwards its forecasts for economic growth over the next three years. After a period of silence in the run up the UK elections the first comments in over a month on the prospects for the UK economy indicated at reduced expectations for the British economy. Growth of 2.5% was forecast for 2015, down from 2.9% in its previous report as the Governor Mark Carney commented that inflation was also likely to increase towards the end of the year. Mr Carney’s view of the impact of lower crude prices seemed to be in line with his counterparts at other central banks, stating that the effects from the recent fall in crude prices would be relatively short lived. Sterling traded within a wide range today, rallying towards 1.5740 against the dollar as investors dissected the report before falling back towards 1.5640 towards the US open. For now the pound remains on track to post a fourth straight session of gains against the USD, resuming the upward trend. 

Recent divergence in zinc price vs. stocks continues 

LXK5 Comdty LME ZINC FUTURE M 2015 05 13 13 23 23

GBP falters early on before building on recent gains

GBP Curncy British Pound Spot 2015 05 13 15 20 36

Topics: Inflation, BoE, LME, GBP, Zinc
More from: Kash Kamal