London 26/08/2016 - The ‘Tom’/Next spread for zinc tightened during Friday afternoon trading as the dominant position holder increased, LME data showed.
The sensitive spread was last at a backwardation of $2, having been level earlier today. Along the curve the benchmark cash/threes was last at $4.50, while cash/Sept was at $8, cash/Oct $6.65 and cash/Nov at $1.10.
LME warrant holding data showed that there is now one position holder for both the tom and the cash in the 50-79 percent bracket.
Should tightness persist or grow, it could prove a headache for shorts who need to roll positions, with metal owners poised to take advantage.
LME forward banding data showed that there is one short position at more than 40 percent for the September date.
Short covering has pushed the metal higher - earlier it spiked to a May 2015 high of $2,327.50. It was last at $2,317 and up $10 on the close. Business has been swift and more than 10,000 lots had changed hands on Select so far.
The metal has also found support from comments from Glencore yesterday. The miner-trader gave no clues about when it will resume zinc mining at its mothballed projects while delaying the restart of the bulk of its African mining copper operations. The company cut 500,000 tonnes per year of capacity due to weak prices.
“Zinc buyers may be revisiting the buy side in light of Glencore ‘staying the course’ and maintaining cuts for now,” INTL FCStone analyst Edward Meir said.
“The price rise - which moreover has been driven in part by speculation - meanwhile appears excessive, so we envisage correction potential in the short term,” Commerzbank said.
Of inventories of 454,175 tonnes of metal, 25,250 tonnes are cancelled, leaving 428,925 tonnes of available material.
There is no shortage of metal, traders said - several hundred thousand tonnes are stored off-warrant in Asia and in New Orleans in the US, it is thought.
"There are some big people behind the off-warrant stocks. Concentrates are tight but for refined there is no demand," a warrant trader said, adding a US bank with deep pockets is likely to be behind any squeeze.
(Editing by Tom Jennemann)