Zinc Prices Fall Amid Supply Stability but Future Risks Remain

Current:
Zinc: 3037
Variation:
Yearly 18.03% Monthly 14.26%
Expected Return:
Q1 2.31% Q4 8.70%

Zinc prices have decreased to $3,060 per tonne, pulling back from a recent 20-month high as rising inventory levels alleviated fears of supply shortages. A single party had previously controlled up to 79% of the available LME zinc stocks, which raised concerns about limited short-term availability. However, this anxiety has subsided following the addition of 10,275 tons into LME warehouses in Singapore, bringing the overall stock to 242,425 tons.

In a related development, Ozernoye, a major zinc producer in Russia, is grappling with production issues due to sanctions impacting equipment procurement. This situation casts uncertainty on the mined zinc supply forecasts for 2025. Ozernoye had aimed for full-capacity production of 320,000 metric tons in 2025, rresenting about 2.5% of global supply, but this target may now be jeopardized.

Since the start of 2024, zinc has risen by $379/MT, or 14.26%, based on trading from contracts for difference (CFD) that monitor this commodity's benchmark market. Analysts predict zinc will trade at $3,107.12 per metric ton by the end of this quarter, with expectations of rising to $3,301.08 within the next 12 months.

Investment Strategy for Zinc in Industrial Country:

Based on the provided data and context, the investment strategy involves a combination of short-term and long-term approaches to capitalize on the expected price movements of zinc:

Short-term Strategy (Next Quarter):

• Given the current price of zinc at $3,037 per tonne and the expected price of $3,107.12 by the end of the quarter, there is a forecasted increase of approximately 2.31%. This expected growth, combined with the alleviation of immediate supply fears due to increased LME warehouse stocks, suggests a mild bullish outlook.
• Take a long position in zinc futures expiring at the end of the quarter to benefit from the anticipated price increase.
• Consider purchasing call options with a strike price slightly above the current zinc price to leverage potential gains if prices exceed short-term expectations.

Long-term Strategy (Next Year):

• Forecasts indicate a price increase to $3,301.08 within 12 months, representing an 8.70% expected return. While current fears of supply shortages have diminished, long-term uncertainties regarding potential supply disruptions from Ozernoye due to sanctions could bolster prices.
• Maintain a long position in zinc futures for the longer term, but remain vigilant about geopolitical developments that may impact supply from Russia.
• Consider utilizing a protective put strategy by purchasing put options to hedge against downside risks due to market volatility or changes in supply-demand dynamics.

Risk Management:

• Regularly review positions based on updated market data and geopolitical developments, particularly any changes in the supply from significant producers like Ozernoye.
• Set stop-loss orders on futures and options to mitigate potential losses if the market moves against expectations.

This strategy aims to balance risk and reward by taking advantage of current market conditions and forecasted trends in zinc prices.