(Reuters) – The zinc rally has run out of steam. The galvanising metal is still, just, the second-best performer among the base metals traded on the London Metal Exchange (LME) this year. But the benchmark LME three-month price has over the last couple of weeks retreated from above $2,400 per tonne to a current $2,260.
Some of the hot money that drove the price higher over June and July has left the market. The LME’s Commitments of Traders Report showed money managers trimming their net long position by 12,271 lots, or 306,775 tonnes, in the week to Sept. 12.
Given the likely preponderance of technical funds in that category, this collective rush for the exit may have been no more than a reaction to the loss of upside momentum and the subsequent price decline.
The real problem for zinc’s many bull followers is the gap between expectation and reality. The zinc story is one of looming supply crunch as some of the world’s biggest mines come to the end of their operating lives. But there is still scant evidence of any stress in the zinc supply chain.
Global mined and refined production are still rising and there are ample stocks of concentrate and metal to fill any emerging gap with demand. The rally, in other words, had got ahead of the story, leaving the London market vulnerable to precisely the sort of speculative blow-off experienced this month.