Looking at the zinc on backorder 4225t...one might think the rally has stalled and that the inventory build might continue.
I thought, 'What's a better indicator of future demand than LME stocks and what's on backorder?'.
It really has to be manufacturing. Global manufacturing. This is where the greatest demand for metals etc is.
I pondered...'Is there a relationship between zinc demand and global manufacturing?' Clearly there is but I was surprised to see how close it is.
Below in a 6mth zinc chart.
Demand has almost been non-existent for the last 3-5 months. Probably by October new big orders stopped and back-orders were filled in Nov.
To quote Barclay's...
Barclays Capital says its leading indicators for base metals demand point to a sharp pick-up in demand momentum toward the end of first quarter and into the second quarter.
You can see that big dip in manufacturing demand at the end of 2011, which matches zinc demand and the growth in inventory.
Some other interesting points:
global manufacturing sector continued to record belowtrend growth at the start of 2012
51.2 in January, the JPMorgan Global Manufacturing PMI™ rose to a seven month high
new orders rose for the first time since last August.
January saw stocks of purchases decline for the fifth month running (5 months ago was then zinc inventory stopped falling).
To me anyway, all of this seems to indicate that we are on the cusp of stronger metal demand that may hit from late March to mid-October. This is global demand too including China, so it's important to take in the whole picture.
KZL Price at posting:
32.5¢ Sentiment: Buy Disclosure: Held
