a closer look at shanghai + zinc stocks, page-2

Updated: April 22, 2012

Summary:

In the last update, copper was slightly bearish and zinc slightly bullish. After considering the demand outlook by traders and inventory levels, one can conclude that copper has returned to favour and looks slight bullish, whilst zinc has fallen out of favour and has returned to being neutral.

Although zinc put options are up markedly, the upside is that the fall in Shanghai stocks has accelerated, which indicates stronger Chinese demand, which is being offset by slower international demand and a build of LME inventory, with slowness from the steel sector in particular.

10,000t though of LME backorder was generated from the Chicago exchange last report, which indicates auto manufacturers in the US foresee stronger demand going forward. It looks like China will need to restock and should buy 100-200t from the LME in the next 3-5 months. Coupled with falling mine supply in 2012 & 2013, the medium term outlook for zinc remains positive. I believe the longer-term outlook for copper also remains positive and has been overly bearish of late and failed to consider imperfect production and very low inventory levels on the LME and Comex exchange and a Shanghai exchange which looks to have peaked also indicating stronger Chinese demand.

Copper: (outlook - improved)

LME Gross - 262,700 (up from 259,675)
LME Backorder - 57,325 (down from 77,725)
LME Net available - 205,375 (up from 187,050)



Zinc: (outlook - neutral)

LME Gross - 911,825 (up from 895,700)
LME On back-order - 16,350 (down from 21,475)
LME Net available - 895,475 (up from 873,675)

Current Open Calls/Puts:

Metal	Copper	Zinc
Call options	102284	42147
Put options	138024	25030
Prior	(up/down to current data)
+18.87%	86041	42271	-0.29%
-7.43%	128467	20822	+20.20%

----focus on Shangai----

----Copper Shanghai----