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China’s zinc supply is expected to remain short for the second half of 2022, according to Shanghai Metal Market (SMM). According to their analysis, domestic zinc end users were only able to import enough to cover their needs in the third quarter, as a narrowing SHFE/LME price ratio did not provide enough incentive for exporters to ship greater volumes. An aggressive bid in China is likely to widen the ratio, thereby signaling to exporters to send more material to China and away from other markets such as Europe or the US. |
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Based on SMM’s analysis, SHFE prices need to rally in order to drive more exports to China. A rally in SHFE could pull LME prices higher. The LME 3M Select contract last traded at $3,057.50/mt (7:00 AM), down nearly 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. (7/11/2022) |
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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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Today's Charts |
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AEGIS Insights |
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07/07/2022: Have Copper Prices Begun to Find a Bottom? 07/06/2022: 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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