Base Metals - A Selective Bull Market

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In the bull market across industrial commodities (and more recently the soft commodities), the role of the individual fundamentals can sometimes get "lost". However, they have been critically important in determining the relative performance of the individual metals.

In the bull market across industrial commodities (and more recently the soft commodities), the role of the individual fundamentals can sometimes get "lost". However, they have been critically important in determining the relative performance of the individual metals. The most extreme examples are nickel and zinc, which are both (in early May) around 50% down on their bull market peaks, while so far this year both copper and tin have made new cycle highs.

The recent experience of pricing in the zinc market highlights how there can be a massive correction in the price on the back of only a minor deterioration in the fundamentals. When zinc prices peaked at $4,620/tonne in November 2006, LME inventories were around 100,000 tonnes. In early May, the zinc cash quote was hovering around $2,200/tonne, while LME stocks were just 130,000 tonnes. The market has chosen to focus on the strong rebound in mine output, which should filter through to sharply higher refined output as 2008 develops.

Zinc's sister metal - lead - has displayed similar trends with the cash quote in May around 40% below the bull market peak of $3,975/tonne registered in October 2007. However, lead's fundamentals are little changed. The concentrate market remains tight, while crucially exports from China (the only country with significant spare smelting capacity) remain low.

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