LME Activity Not Indicative of Zinc's Underlying Fundamentals

Reuters’ Andy Home reported that while the zinc price is declining “in tandem with most of the other LME-traded industrial metals and for the same reasons,” the metal is looking “increasingly stretched on the short side.”
However, he warned investors that LME activity is not “in any way representative of zinc’s underlying supply-demand dynamics.”
Home commented:

The forward zinc curve flexed into backwardation last week with cash metal at one stage trading at a $7.00-per tonne premium to three-month metal.
That’s the tightest the period has been since the mini-squeeze in May, when the backwardation traded out to $33 per tonne.
Things have quietened down a little today but there is plenty of potential for more fun and games on the nearby spreads ahead of Aug. 19, this month’s third-Wednesday prime prompt date.
However, this is all about LME positioning with shorts facing off against two dominant long positions within a context of falling exchange stocks.
The outright three-month price is still sliding, touching a low point of $1,882.50 this morning, the lowest it’s been since December 2013.
That should dispel any thoughts that what’s happening on the LME spreads is in any way representative of zinc’s underlying supply-demand dynamics.
The market is currently oversupplied, whatever LME stock levels might suggest.

He ended by stating:

A short-covering reaction may be just a matter of time.
Particularly if short position holders can be stampeded by a sharp tightening of the nearby spread structure.
Last week’s spread gyrations may be a taste of bigger things to come in August, given the rising positioning tensions.
But spread tightness in the current environment will be all about the LME, not about the wider zinc market-place.

Click here to read the full Reuters report.