Zinc is Not in a Bull Market

I’m really tired of hearing the word “bull market” every time some metal rises in price by 20%.

Free Download: The February 2016 MMI Report

The common definition of bull market is an increase of 20% from a low and that, to me, is a very bad definition. However, even well-known sources such as The Wall Street Journal or Bloomberg keep using this definition, which only demonstrates a complete lack of understanding of what a bull market is. We saw this when the WSJ called bull market on China’s stock market and last week Bloomberg declared a zinc bull market.

3M LME Zinc
3-month London Metal Exchange Zinc. Source: MetalMiner analysis of Fastmarkets data.

Is Zinc in a Bull Market?

You don’t have to be a hedge fund manager to realize that there is nothing bullish in zinc’s chart. Yes, zinc rose in February and so did other base metals, part of it due to a weaker dollar and the fact that they all deserved a short-term rally after many consecutive months of declines ( also known as  bargain hunting).

Although February brought a good opportunity for zinc buyers to buy some volume, prices are not yet ready to make a substantial upside move. Under the current bearish commodity environment, this rally might just fall below resistance levels.

What’s Really a Bull Market?

To me, a bull market means price strength in an atmosphere where funds are creating a tailwind. The kind of environment in which bearish news is dismissed and bullish news is enhanced. An environment that enhances the likelihood of a metal price to continue to rise. In conclusion, an environment where metal buyers want to be hedging/buying forward.

Free Sample Report: Our February Metal Buying Outlook

That’s not really the case with zinc. First, zinc is showing momentary price strength after a huge decline, the kind of price strength caused by bargain hunters. Second, the current macro environment doesn’t favor prices continuing to rise. A slump in oil prices, a bear commodity market, China’s widening trade surplus and its ongoing stock market crash are not factors that would favor a rising trend in zinc prices going forward. Moreover, despite some production cuts, there is a lot of zinc sitting in warehouses and off-exchange storage that could also prevent prices from rising.

What This Means For Metal Buyers

If you call bull market every time a metal rises 20% you are going to be right at some point but the definition is useless when it comes to having a good purchasing strategy. The point is to identify when your metal is showing price strength, backed up with strong fundamentals and under a bullish macro environment that will help prices to continue to increase, so you can start hedging. Zinc is just not at that point yet.

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