Zinc prices surged over 6% in early trade on Tuesday, August 16 after Trafigura announced it will be shutting down one of Europe’s largest smelters beginning next month due to high electricity prices. Even prior to this announcement, analysts were increasing their zinc price forecasts.
Earlier this week, Citigroup predicted that despite falling demand, further smelter curtailments in Europe due to an ongoing power crunch could lead to a rebound in zinc prices over the next 12 months. The bank has thus raised its three-month price target to $3,200/mt, and its six-to-twelve-month target to $3,400/mt. Both targets are up $400/mt from their prior forecast. However, the bank remains “marginally bearish,” as the power crisis in Europe could also suppress demand. Zinc prices have already bounced over 20% since mid-July due in part to smelter shutdowns and could rally further if more curtailments occur. |
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Zinc’s forward curve has also shifted vertically higher and is severely backwardated. This allows a zinc end-user such as a galvanizer to hedge future purchases at prices lower than the current spot market. |
Worried that zinc prices could see more upside? End users such as galvanizers can hedge zinc in a variety of ways, as we detail below. Buying swaps or call options are viable strategies, as either would establish a maximum zinc price. Such positions are basic for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. |
