Ouch! It’s the Smelter

ZINC – 25% down in 35 calendar days should definitely pinch if not hurt even the most entrenched bull. Have you thought what another 25% might do? And why did we fall in the first place? The notorious Hedge fund, the global reason, the local reason, the Zinifex-Umicore merger to become the largest ZINC producer in the world (Reuters-12 Dec), or the top analyst’s view, who went on quote saying, “The zinc market is very hot right now and it’s a good time to sell zinc smelters“. We at OR-PHE-US agree, the sector is headed for more heat ahead, especially if we hit our next target after 840 at 660.
What we said on ZINC and Hindustan Zinc?
Nov 1 “Even if ZINC and related assets have some upside left we should see a multi month easing before a real move up re-exerts itself” Nov 14 “At this stage it seems HZNC has turned. Now if you were a traditional researcher you would be waiting for ZINC to turn before selling HZNC. This is extrapolation. For us HZNC can tell you more about ZINC reversals than vice versa. And below 900, its 840 for HZNC and below 840, its 660.”
We gave our readers a target of near 1000 on Nov 1. And near 1000 we anticipated a turn. And what we witnessed the last few trading sessions is just one leg. If we see things right, there are more heart burns ahead. 660 looked ridiculous then, but with a low of 770 today, at least we sound a bit rational now. And above all the two smelters that merged ZFX (Zinifex) and ACUMT (Umicore) are technically diverging. ACUMT has not made a new high while ZFX has straddled 26% higher above revious high. Divergence as a concept is not positive if it happens at a top. Let’s see, if this is one of the 33% mergers that ever succeeded in history of mergers since 1985.