February 1, 2023

Zinc is one of the top-performing LME metals so far this year, and there is potential for upside price risk.  LME warehouse stocks have fallen dramatically so far this year, which could signal that global supplies are tight. As of February 1, total LME warehouse inventories were 16,475 mt, down approximately 48% on the year. This recent scramble to buy zinc stocks has pushed LME inventories to the lowest levels since 1986. AEGIS closely watches LME warehouse levels, as LME inventories are generally thought to be a gauge of metal supply constraints. Zinc prices could see more upside if traders and end-users rush to buy inventory from the LME or other sources. (Source: Bloomberg)

We also note that the civil unrest in Peru could further hinder global zinc supplies. The political protests that began in early December have worsened in recent weeks, forcing several large zinc miners to curtail fully or partially due to road blockades. Peru is the world’s second-largest zinc miner, so any supply disruptions there will likely have an outsized impact on market prices.

LME Zinc’s forward curve is currently backwardated, thus allowing a zinc end-user such as a galvanizer to hedge future purchases at prices lower than the current spot market. Thus, even with the recent rally, this still could be a good time for zinc end-users to hedge future inputs. Buying swaps or call options are viable strategies, as either would establish a maximum zinc price. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please note that zinc options have lower liquidity than swaps. Please contact AEGIS for specific strategies that fit your operations. (2/1/2023)

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Price Indications

Today's Charts

AEGIS Insights

01/25/2023: AEGIS Factor Matrices: Most important variables affecting metals prices

01/24/2023: Peruvian Protests Could Support Copper Prices

01/11/2023: Nickel Prices Could Remain Volatile Into 2023

12/21/2022: Nickel Prices Rally While 2023 Supply Picture Remains Unclear

12/14/2022: Could Peruvian Protests Affect Zinc Production or Prices?

1/31/2023: US HRC: Prices flat, range tightens

1/31/2023: UPDATE 1-Philippine nickel mining group rejects proposed tax on ore exports

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1/31/2023: Explainer: Why are there protests in Peru and what comes next?

1/31/2023: Squeezed mining companies face growth dilemma

1/30/2023: Russian carmaker Avtotor launches production of Chinese Kaiyi cars

1/30/2023: Column: China hikes aluminium tariffs but export boom already over

1/29/2023: China's MMG flags production halt at Las Bambas in Peru due to protests

1/27/2023: Norway finds 'substantial' mineral resources on its seabed

1/27/2023: Electric vehicles throw palladium's mega-rally into reverse

1/27/2023: 5 things we learned at Fastmarkets’ Scrap & Steel ’23 conference

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.