Ouch! it's the smelter – Part II

Historical Call – It was at the FIA (Futures Industry Association) CONFERENCE on OCT 17-19 2006, Hilton Towers, Mumbai, we were asked about ZINC. For us it was a euphoric move up and unsustainable. The five wave up were complete and prices coiling up in a B wave retest back to previous highs. We saw the C crash pending on Hindustan Zinc. And so this is what we said, “ZINC is coming down”. This evoked a shock in the Hedge Fund, Researcher who starting telling us numbers linked with Demand and Supply. Basically he was trying to debate, “How can it fall?” The classic question asked to cyclists, alternative researchers and fractal watchers.
Well! we came out with our ZINC special on 1 NOV 2006. And this is what we said. “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”.
14 Nov (Ouch It’s the smelter), we came with the second update. “At this stage it seems Hindustan Zinc (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.” The stock was falling despite a rising market. 14 Feb 2007, (Zinced on Valentines) we came with the third update. If you bought ZINC because of the Zinifex-Umicore merger, thinking the largest ZINC producer in the world (Reuters-12 Dec) might give you some portfolio efficiency…we are sorry…you might have to wait. Another 100 or 200 points, HZNC at 500 or 400 should be more attractive.
It’s two years, since our Nov 2006 call on ZINC. After making a low of 238 on 30 OCT, the prices are now at 315. Zinc international spot prices and Hindustan Zinc have retraced 78.6% of it’s all time rise. Now what? Just like, “How can it fall?” mass psychology also suffers from the “How can it rise syndrome?” And deep 78.6% retracements are capitulation collapses characteristic of CYCLE II waves. How can we be sure this is CYCLE II wave and not a SUPERCYCLE II, which should keep prices suppressed for more than a few years? The answer to this can be given by intermarket relationships. First. Gold, the sector leader has not collapsed and suggests a sectoral premium. Second. Gold cycle of 30 years can’t get over in 10 years. Third. Rise of Gold creates more reasons for a hyperinflationary depression than deflationary depression. The former pushes metals and commodities higher. Fourth: If Oil is rising to 500 (OIL in 2012), it reinforces the commodity, Gold and metals case. Fifth: The 30 year commodity cycle coinciding with the 90 years Strauss and Howe cycle in 2024-2030 is when we should head for a SUPERCYLE crash. Till then all base and precious metals collapse seem to be a low risk entry points for multi years till 2012-2015.
There is nothing wrong with conventional reasoning, it’s just that the conventionalism is colored by euphoric and panic drivers. Emerging markets have a lot of incomplete infrastructural projects that will take years to complete. Even if the conventional auto manufacturers will die (if not already dead), green car manufacturing will keep the need for metals high. Zinc has a high linkage with Steel, Rubber, Paints, Shampoos, Cough Drops etc. The base metal also has a strong biological role. Hence the question “How can it rise?” is a self created mass psychology illusion. Silver continues to lead the rest of the metals. Barring Gold, which still seems to have downside left, the rest of the metals complex remain a ‘DOWN BUT BOTTOMING’ scenario for us.
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