For the past few years, zinc and lead haven’t made big moves, while other industrial metals trended down. When a metal is moving sideways for long periods of time, it is important to interpret price fluctuations to be ready when buying opportunities show up.
During these periods, from a buyer’s perspective, a good strategy is to do nothing while prices move within expected levels and buy forward when prices break through resistance levels (levels where a lot of selling has repeatedly occurred). Once prices break through these levels, prices are likely to keep going up, so this is a good time to take risk off the table.
The chart above shows how zinc moved for the past three years. Buyers might want to start buying forward when zinc breaks above $2,200 per metric ton. Buyers shouldn’t be alarmed as long as fluctuations don’t go above $2,200, as they are likely to bounce back down.
Similarly, if lead crossed $2,250 per metric ton that would be a good point for buyers to start increasing their hedging positions. Meanwhile, fluctuations between $2,200-$2,250 should be considered normal.
What This Means For Metal Buyers
By simply understanding price fluctuations and setting price targets, buyers can make a great job in managing commodity price risk and reducing costs without the need of guessing which direction prices will take.