Wednesday, July 24, 2013

Zinc: Financial Instrument of the Future

Spot zinc closed at $0.8384/lb.
From Metal Bulletin:

SPOTLIGHT: Unlike aluminium, physical market will support zinc premiums if incentives end
KEYWORDS: Zinc premiums , LME warehouses , incentives , carry-trade , LME load-out rules , aluminium premiums
Regional zinc premiums are likely to remain supported, even if the incentives that warehouse companies have offered to attract metal towards the back of the queues in Vlissingen, Detroit, New Orleans and Antwerp drop or are withdrawn altogether. 
Zinc shares the characteristics of oversupply, loose contangoes and low outright prices that have made aluminium a favoured metal for carry-trade financiers, and, as in the aluminium market, their appetite for metal has supported physical zinc premiums over the past couple of years. But unlike aluminium, zinc premiums are unlikely to drop dramatically if warehouse companies stop incentivising those financiers to post collateral in backlogged locations....MORE
Words to make a financier's heart go pitty-pat. So who will garner the nom de hoard Zincfinger?

As (almost) foretold by the Prophecy:
June 2009
"Buy Zinc" (Not Really)
Dec. 2010 
Goldman Sachs: Buy Zinc
Feb. 2011
"Deutsche Bank: Time to Get Behind Zinc!" (following Goldman's lead)
October 2012 
"Buy Zinc" (but not yet)
...From an April '08 post, "Buy Tin":
That was the cryptic message from a reformed metals trader this afternoon. No rationale, no investment thesis, just "buy tin".

I couldn't help thinking of the Barney Miller episode "Child Stealers".
Time traveler "Adam Boyer" comes back from 2057 and is hounded by Harris for stock tips:
[Harris, acting on a tip from a "twinkie" claiming to be a Sociology Professor from Columbia University who's traveled back in time from the year 2057 (played by the great character actor Richard Libertini), calls his broker to transfer his assets from gold bullion to the financial standard of the future--Zinc!!]:

", no blue chips, either...I was thinking about Zinc! (pause) Yeah, Zinc! What's it goin for these days? (writing the figure on a notepad)...Thirty seven and a half cents---a POUND?? (The "Professor" gives Harris an encouraging nod)...Yeah, well, I might be willin' to spring for a coupla TONS!"...
The episode aired in January 1980 so at $.8580, zinc didn't do so hot (but actually better than gold, which hit $850 that same month). The reformed metals trader worked for one of the discrete, some might say secretive  Swiss-based physical commodities traders.

He had up to $50 mil. discretion to buy Russian copper cathodes or aluminum or whatever, figure out the logistics, rail, shipping, bribe the right port authorities etc. Pretty much end-to-end, turnkey, whatever you wanted to call it.

So when he called, I listened. And started laughing. I couldn't get that damned Barney Miller scene out of my head....
There hasn't been a lot of urgency to pull the trigger: