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Soaring electricity prices throughout Europe could lead to further zinc smelter curtailments, according to Macquarie. If electricity prices stay high, or power rationing occurs, the bank estimates that European zinc output will drop to 2.03 – 2.08 million mt this year, down from their prior estimate of 2.37 million mt. Based on their calculations, this could lead to a global deficit of 0.315 to 0.360 million mt, up from their prior estimate of 0.220 million mt. The bulk of the deficit is in Europe, as they estimate that the region could have a deficit of 0.290 to 0.335 million mt. They also believe that “greater losses than this should only occur in a truly power shortage scenario.” |
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LME zinc prices have tumbled in recent months. The 3M Select contract last traded at $3,008.50/mt (7:00 AM), down over 38% from the March highs. This could be an opportunity for end-users such as galvanizers to hedge future needs. End-users might consider applying simple hedges involving swaps to lock in a price or call options to establish a maximum price. One other possible strategy is a costless collar. In this case, a “zero-cost collar” creates a maximum and minimum zinc price for a galvanizer, as they would simultaneously buy a call option (creating a cap, or maximum) and sell a put option (creating a floor, or minimum). The call and put premiums offset, making the construction costless. It is popular because of the upside price protection, but you sacrifice access to much lower prices if prices should fall. Such positions are standard for consumer hedging, but they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (7/6/2022) |
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Note: Clients with AEGIS Platform access can see this and other research, plus hedge portfolio reporting and tools here. |
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AEGIS Insights |
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06/29/2022: AEGIS Factor Matrices: Most important variables affecting metals prices 06/23/2022: What is Green Steel Anyways? |
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| Important Headlines | ||
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7/5/2022: Copper price lowest since November 2020 on economic slowdown worries 7/5/2022: Euro slides to 20-year low against the dollar as recession fears build 7/5/2022: Russia's Potanin weighs $60 billion metals merger as defence against sanctions 7/4/2022: Metals melt down as recession fears overwhelm supply woes 7/4/2022: Iron ore price tumbles as China’s demand outlook darkens |
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Important Disclosure: Indicative prices are provided for information purposes only, and do not represent a commitment from AEGIS Hedging Solutions LLC ("Aegis") to assist any client to transact at those prices, or at any price, in the future. Aegis makes no guarantee to the accuracy or completeness of such information. Aegis and/or its trading principals do not offer a trading program to clients, nor do they propose guiding or directing a commodity interest account for any client based on any such trading program. Certain information in this presentation may constitute forward-looking statements, which can be identified by the use of forward-looking terminology such as “edge,” “advantage,” “opportunity,” “believe” or other variations thereon or comparable terminology. Such statements are not guarantees of future performance or activities.
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