Buying (Going Long) Zinc Futures to Profit from a Rise in Zinc Prices

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker!
    Perfect For Beginners!
    Free Trading Education!
    Free Demo Account!
    Sign-up Bonus:

  • Binomo
    Binomo

    Good Choice For Experienced Traders!

Zinc TC/RC benchmark to rise in 2020 on supply resurgence: analysts

Washington — The benchmark zinc treatment/refining charge is expected to rise significantly year on year in 2020, according to analysts, based on a surge in zinc concentrate supplies as well as sharply higher Chinese spot TC/RCs.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

TC/RCs are the fees miners pay to smelters to process zinc concentrates into refined metal.

“Most people expect the TC/RC will go up, and the advantage is with the smelters,” said a UK-based metals analyst. “My impression is that there’s a quite large difference of opinion between the two sides.”

Commerzbank analyst Daniel Briesemann had a similar view.

“As far as I understand, the last few years, some tensions between the miners and smelters have built. So I don’t think the sky is clear at the moment,” Briesemann said

In any event, whichever side – the miners or smelters – has the negotiating edge in any given year comes down to concentrate supplies, and by all indications, 2020 marks a step on the road back to plentitude.

  • Learn more about:

Nonferrous Metals Ambassador

Platts metals market reports feature global news, analysis, daily pricing and commentaries for major nonferrous metals, ferroalloys and steel products. Click the link below for more information; fill out the contact form and a member of Platts staff will be in touch.

An abundance of concentrate gives smelters the upper hand, while a tight market increases competition among smelters for material to process, which in turn, drives TC/RCs lower.

“Most people thought it would take a while for the concentrates pipeline to fill up, but it looks like it’s being filled up very quickly,” said a zinc trader.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker!
    Perfect For Beginners!
    Free Trading Education!
    Free Demo Account!
    Sign-up Bonus:

  • Binomo
    Binomo

    Good Choice For Experienced Traders!

The 2020 benchmark TC/RC reportedly settled at $147/mt, down from $172/mt in 2020, amid still tight concentrates supply.

But the trader said he thought this year’s benchmark could be as high as $210-$230/mt. “I think the smelters are going to dig their heels in and say, ‘This is the number,'” he said.

Sources said the change in the supply picture for 2020 will be the result of an increase in production in places like China and a series of mine restarts.

“We’re seeing a buildup of concentrates in China,” the trader said. “If you look at the numbers from November-December, we had some very high numbers, especially coming out of Australia, and that’s probably going to continue.”

A gradual recovery in zinc prices sparked a wave of mine restarts, the trader said, after mines were shut when prices tanked a couple of years ago.

“Now we’re back to the scenario where we’ve got a lot of zinc concentrate coming out of the ground. The only way you’re going to get it made into metal is for the smelters to get paid for it,” he said.

LME three-months zinc was trading at $2,608/mt Wednesday.

The UK analyst agreed. “Most people expect the supply of concentrates to be better over the course of this year. More material will become available,” he said, adding that a rise in TC/RCs this year would be the first since 2020.

He also saw concentrate production in China as a big factor.

“That’s always going to be a point of debate because the statistics around mining operations in China are even patchier than for metal production,” he said.

Briesemann added: “Zinc mining production will be expanded quite significantly this year due to various projects either being commissioned or being expanded, including projects in South Africa and Australia.”

According to the International Lead and Zinc Study Group, global zinc mine production rose 1.7% year on year in the first 11 months of 2020, mainly due to output increases in Australia, and rises in Eritrea and the US.

But another factor is also looming large in this year’s TC/RC talks, China’s spot TC/RCs.

“It will be a very important point of reference in the discussions,” said the UK analyst. “It has been rising very steeply in recent months. . The spot TC is now a long way above last year’s benchmark, whereas in previous years, the spot market has been below the benchmark when the negotiations have come around.”

During 2020 negotiations, he said, China’s spot TC was around $20/mt or less.

“So it’s not surprising that the 2020 benchmark was reduced,” he said. Currently, China’s spot TC/RC is trending at around $250/mt.

DOES PRICE PARTICIPATION STAY OR GO?

Also up for discussion in this year’s negotiations is price participation, whereby smelters get an agreed-upon percentage of a zinc price increase during the year via price escalators, which comes on top of the base TC/RC. Conversely, a TC/RC deal that includes de-escalators reduces the base fee by set percentages if the zinc price falls. The 2020 benchmark TC/RC included “zero” escalators/de-escalators, the UK analyst noted, which he said he believed could happen again this year.

“Two or three years ago, people were expecting – rightly as it turned out – there would be quite a strong rise in zinc prices,” he said. “That’s why the miners wanted to exclude price participation, so they could get the benefit of that rise in prices.”

But with prices this year facing more of a downside risk, he said: “Some smelters are in quite a tough position financially and so [price de-escalators] may not suit them . so there’s a possibility that price participation will again be very limited or [the parties] will agree on flat terms.”

The zinc trader said smelters in particular can use price participation to their advantage. “They may be in such a strong position that they can take the de-escalator out and put an escalator in,” he said, adding that an escalator set to trigger at a $200-$300 increase over the current zinc price would be advantageous for smelters.

CHINESE REACTION TO HIGHER TC/RC

China is likely to step up its refined zinc production amid higher treatment charges in 2020, the trader said, and, as a result, “as we get into summer, I think you will see zinc stocks going up.”

However, the UK analyst said that this year, China’s refined zinc production is expected to be flat to its 2020 output, or only moderately higher.

But one wild card in the game is reported cuts in Chinese smelter capacity in an effort to curb pollution.

“Even if there’s all of these concentrates around, will the Chinese government let them make it into metal? We don’t know the answer to that question,” the trader said.

Shareholders

Stock markets are measured by stock indexes (or indices), such as the Dow Jones Industrial Average (DJIA) in New York, and the FTSE 100 index (often called the Footsie) in London. These indexes show changes in the average prices of a selected group of important stocks. There have been several stock market crashes when these indexes have fallen considerably on a single day (e.g. ‘Black Monday 5 , 19 October 1987, when the DJIA lost 22.6%).

Financial journalists use some animal names to describe investors:

■ bulls are investors who expect prices to rise

■ bears are investors who expect them to fall

■ stags are investors who buy new share issues hoping that they will be over-subscribed. This means they hope there will be more demand than available stocks, so the successful buyers can immediately sell their stocks at a profit.

A period when most of the stocks on a market rise is called a bull market. A period when most of them fall in value is a bear market.

Dividends and capital gains

Companies that make a profit either pay a dividend to their stockholders, or retain their earnings by keeping the profits in the company, which causes the value of the stocks to rise. Stockholders can then make a capital gain – increase the amount of money they have – by selling their stocks at a higher price than they paid for them. Some stockholders prefer not to receive dividends, because the tax they pay on capital gains is lower than the income tax they pay on dividends. When an investor buys shares on the secondary market they are either cum div, meaning the investor will receive the next dividend the company pays, or ex div, meaning they will not. Cum div share prices are higher, as they include the estimated value of the coming dividend.

Institutional investors generally keep stocks for a long period, but there are also speculators – people who buy and sell shares rapidly, hoping to make a profit. These include day traders – people who buy stocks and sell them again before the settlement day. This is the day on which they have to pay for the stocks they have purchased, usually three business days after the trade was made. If day traders sell at a profit before settlement day, they never have to pay for their shares. Day traders usually work with online brokers on the internet, who charge low commissions – fees for buying or selling stocks for customers. Speculators who expect a price to fall can take a short position, which means agreeing to sell stocks in the future at their current price, before they actually own them. They then wait for the price to fall before buying and selling the stocks. The opposite – a long position – means actually owning a security or other asset: that is buying it and having it recorded in one’s account.

June 1: Sell 1,000 Microsoft stocks, to be delivered June 4, at current market price: $26.20 June 3: Stock falls to $25.90. Buy 1,000

June 4: Settlement day. Pay for 1,000 stocks @ $25.90, receive 1,000 x $26.20. Profit $300

A short position

31.1 Label the graph with words from the box. Look at A opposite to help you.

bull market crash

1984 1985 1986 1987 1988

31.2 Answer the questions. Look at A, B and C opposite to help you.

1 How do stags make a profit?

2 Why do some investors prefer not to receive dividends?

3 How do you make a profit from a short position?

31.3 Make word combinations using a word or phrase from each box. Some words can be used twice. Then use the correct forms of the word combinations to complete the sentences below. Look at B and C opposite to help you.

make a capital gain
own a dividend
pay earnings
receive a position
retain a profit
take securities
tax

1 I. less. on capital gains

than on income. So as a shareholder, I prefer

not to. a. If the

company. its. , I can

selling my shares at a profit instead.

2 Day trading is exciting because if a share price

falls, you can. a. by

. a short. But it’s risky

Would you like to be

selling. that you don’t even

The sculpture of a bull near the New York Stock Exchange

a day trader? Or would you be frightened of taking such risks?

Influences on share prices

Share prices depend on a number of factors:

■ the financial situation of the company

■ the situation of the industry in which the company operates

■ the state of the economy in general

■ the beliefs of investors – whether they believe the share price will rise or fall, and whether they believe other investors will think this.

Prices can go up or down and the question for investors – and speculators – is: can these price changes be predicted, or seen in advance? When price-sensitive information – news that affects a company’s value – arrives, a share price will change. But no one knows when or what that information will be. So information about past prices will not tell you what tomorrow’s price will be.

There are different theories about whether share price changes can be predicted.

■ The random walk hypothesis. Prices move along a ‘random walk’ – this means day-to­day changes arc completely random or unpredictable.

■ The efficient market hypothesis. Share prices always accurately or exactly reflect all relevant information. It is therefore a waste of time to attempt to discover patterns or trends – general changes in behaviour – in price movements.

Head and shoulders pattern

■ Technical analysis. Technical analysts are people who believe that studying past share prices does allow them to forecast future price changes. They believe that market prices result from the psychology of investors rather than from real economic values, so they look for trends in buying and selling behaviour, such as the c head and shoulders’ pattern.

■ Fundamental analysis. This is the opposite of technical analysis: it ignores the behaviour of investors and assumes that a share has a true or correct value, which might be different from its stock market value. This means that markets are not efficient. The true value reflects the present value of the future income from dividends.

Analysts distinguish between systematic risk and unsystematic risk. Unsystematic risks are things that affect individual companies, such as production problems or a sudden fall in sales. Investors can reduce these by having a diversified portfolio: buying lots of different types of securities. Systematic risks, however, cannot be eliminated in this way. For example market risk cannot be avoided by diversification: if a stock market falls, all the shares listed on it will fall to some extent.

32.1 Match the two parts of the sentences. Look at A and B opposite to help you.

1 The random walk theory states that

2 The efficient market hypothesis is that

3 Technical analysts believe that

4 Fundamental analysts believe that

a studying charts of past stock prices allows you to predict future changes,

b stocks are correctly priced so it is impossible to make a profit by finding undervalued ones,

c you can calculate a stock’s true value, which might not be the same as its market price,

d it is impossible to predict future changes in stock prices.

32.2 Are the following statements true or false? Find reasons for your answers in B and C opposite.

1 Fundamental analysts think that stock prices depend on psychological factors – what people think and feci – rather than pure economic data.

2 Fundamental analysts say that the true value of a stock is all the income it will bring an investor in the future, measured at today’s money values.

3 Investors can protect themselves against unknown, unsystematic risks by having a broad collection of different investments.

4 Unsystematic risks can affect an investor’s entire portfolio.

32.3 Match the theories (1-3) to the statements (a-c). Look at B opposite to help you.

1 fundamental analysis

2 technical analysis

3 efficient market hypothesis

Share prices are correct at any given time. When new information appears,

they change to a new correct price.

By analysing a company, you can determine its real value. This sometimes allows you to make a profit by buying underpriced shares.

It’s not only the facts about a company that matter: the stock price also depends on what investors think or feel about the company’s future.

Do you believe that it is possible to find undervalued stocks, predict future price and regularly get returns that are higher than the stock market average?

Government and corporate bonds

Bonds are loans to local and national governments and to large companies. The holders of bonds generally receive fixed interest payments, once or twice a year, and get their money – known as the principal – back on a given maturity date. This is the date when the loan ends.

Governments issue bonds to raise money and they are considered to be a risk-free investment. In Britain government bonds are known as gilt-edged stock or just gilts. In the US they are called Treasury notes, which have a maturity of 2-10 years, and Treasury bonds, which have a maturity of 10-30 years. (There are also short-term Treasury bills which have a different function: see Units 25 and 27.)

Companies issue bonds, called corporate bonds, because they can usually pay less interest to bondholders than they would have to pay if they raised the same money by a bank loan. These bonds are generally safer than shares, because if a company cannot repay its debts it can be declared bankrupt. If this happens, the creditors can force the company to stop doing business, and sell its assets to repay them. In this way, bondholders will probably get some of their money back.

Borrowers – the companies issuing bonds – are given credit ratings by credit agencies such as Standard & Poor’s and Moody’s. This means that they are graded, or rated, according to their ability to repay the loan to the bondholders. The highest grade (AAA or Aaa) means that there is almost no risk that the borrower will default – fail to pay interest or to repay the principal. Lower grades (e.g. Baa, BBB, C, etc.) mean an increasing risk of the borrower becoming insolvent – unable to pay interest or repay the capital.

Prices and yields

Bonds are traded by banks which act as market makers for their customers, quoting bid and offer prices with a very small spread or difference between them. (See Unit 30) The price of bonds varies inversely with interest rates. This means that if interest rates rise, so that new borrowers have to pay a higher rate, existing bonds lose value. If interest rates fall, existing bonds paying a higher interest rate than the market rate increase in value. Consequently the yield of a bond – how much income it gives – depends on its purchase price as well as its coupon or interest rate. There are also floating-rate notes – bonds whose interest rate varies with market interest rates.

Other types of bonds

When interest rates are high, some companies issue convertible shares or convertibles, which are bonds that the owner can later change into shares. Convertibles pay lower interest rates than ordinary bonds, because the buyer gets the chance of making a profit with the convertible option.

There are also zero coupon bonds that pay no interest but are sold at a big discount on their par value, which is 100%, and repaid at 100% at maturity. Because they pay no interest, their owners don’t receive money every year (and so don’t have to decide how to reinvest it); instead they make a capital gain at maturity.

Bonds with a low credit rating (and a high chance of default), but paying a high interest rate, are called junk bonds. Some of these are known as fallen angels – bonds of companies that were previously in a good financial situation, while others are issued to finance leveraged buyouts. (See Unit 40)

BrE: convertible share; AmE: convertible bond

33.1 Match the words in the box with the definitions below. Look at A and B opposite to help you.

coupon maturity date
credit rating principal
gilt-edged stock Treasury bonds
default Treasury notes
insolvent yield

1 the amount of capital making up a loan

2 an estimation of a borrower’s solvency or ability to pay debts

3 bonds issued by the British government

4 non-payment of interest or a loan at the scheduled time

5 the day when a bond has to be repaid

6 long-term bonds issued by the American government

7 the amount of interest that a bond pays

8 medium-term (2-10 year) bonds issued by the American government

9 the rate of income an investor receives from a security 10 unable to pay debts

33.2 Are the following statements true or false? Find reasons for your answers in A, B and C opposite.

1 Bonds are repaid at 100% when they mature, unless the borrower is insolvent.

2 Bondholders are guaranteed to get all their money back if a company goes bankrupt.

3 AAA bonds are a very safe investment.

4 A bond paying 5% interest would gain in value if interest rates rose to 6%.

5 The price of floating-rate notes doesn’t vary very much, because they always pay market interest rates.

6 The owners of convertibles have to change them into shares.

7 Some bonds do not pay interest, but are repaid at above their selling price.

8 Junk bonds have a high credit rating, and a relatively low chance of default.

33.3 Answer the questions. Look at A, B and C opposite to help you.

1 Which is the safest for an investor?

A a corporate bond B a junk bond C a government bond

2 Which is the cheapest way for a company to raise money?

A a bank loan B an ordinary bond C a convertible

3 Which gives the highest potential return to an investor?

A a corporate bond B a junk bond C a government bond

4 Which is the most profitable for an investor if interest rates rise?

A a Treasury bond B a floating-rate note C a Treasury note

Is this a good time to buy bonds? Why/why not?

Forward and futures contracts are agreements to sell an asset at a fixed price on a fixed date in the future. Futures are traded on a wide range of agricultural products (including wheat, maize, soybeans, pork, beef, sugar, tea, coffee, cocoa and orange juice), industrial metals (aluminium, copper, lead, nickel and zinc), precious metals (gold, silver, platinum and palladium) and oil. These products are known as commodities. Futures were invented to enable regular buyers and sellers of commodities to protect themselves against losses or to hedge against future changes in the price. If they both agree to hedge, the seller (e.g. an orange grower) is protected from a fall in price and the buyer (e.g. an orange juice manufacturer) is protected from a rise in price.

Futures are standardized contracts – contracts which are for fixed quantities (such as one ton of copper or 100 ounces of gold) and fixed time periods (normally three, six or nine months) – that are traded on a special exchange. Forwards are individual, non- standardized contracts between two parties, traded over-the-counter – directly, between two companies or financial institutions, rather than through an exchange. The futures price for a commodity is normally higher than its spot price – the price that would be paid for immediate delivery. Sometimes, however, short-term demand pushes the spot price above the future price. This is called backwardation.

Futures and forwards are also used by speculators – people who hope to profit from price changes.

More recently, financial futures have been developed. These are standardized contracts, traded on exchanges, to buy and sell financial assets. Financial assets such as currencies, interest rates, stocks and stock market indexes fluctuate – continuously vary – so financial futures are used to fix a value for a specified future date (e.g. sell euros for dollars at a rate of € 1 for $1.20 on June 30).

■ Currency futures and forwards are contracts that specify the price at which a certain currency will be bought or sold on a specified date.

■ Interest rate futures are agreements between banks and investors and companies to issue fixed income securities (bonds, certificates of deposit, money market deposits, etc.) at a future date.

■ Stock futures fix a price for a stock and stock index futures fix a value for an index (e.g. the Dow Jones or the FTSE) on a certain date. They are alternatives to buying the stocks or shares themselves.

Like futures for physical commodities, financial futures can be used both to hedge and to speculate. Obviously the buyer and seller of a financial future have different opinions about what will happen to exchange rates, interest rates and stock prices. They are both taking an unlimited risk, because there could be huge changes in rates and prices during the period of the contract. Futures trading is a zero-sum game, because the amount of money gained by one party will be the same as the sum lost by the other.

34.1 Match the words in the box with the definitions below. Look at A opposite to help you

backwardation commodities forwards futures
to hedge over-the-counter spot price

1 the price for the immediate purchase and delivery of a commodity

2 the situation when the current price is higher than the future price

3 adjective describing a contract made between two businesses, not using an exchange

4 contracts for non-standardized quantities or time periods

5 physical substances, such as food, fuel and metals, that can be bought or sold with futures contracts

6 to protect yourself against loss

7 contracts to buy or sell standardized quantities

34.2 Complete the sentences using a word or phrase from each box. Look at A and B opposite to help you.

u banks v companies w farmers

A Commodity futures allow B Interest rate futures allow C Currency futures allow

x food manufacturers y importers z investors

1 to charge a consistent price for their products.

2 to be sure of the rate they will get on bonds which could be

issued at a different rate in the future.

3 to know at what price they can borrow money to finance

4 to make plans knowing what price they will get for their crops.

5 to offer fixed lending rates.

6 . to remove exchange rate risks from future international

34.3 Are the following statements true or false? Find reasons for your answers in B opposite.

1 Financial futures were created because exchange rates, interest rates and stock prices all regularly change.

2 Interest rate futures are related to stocks and shares.

3 Financial futures contracts allow companies to protect themselves against short-term changes in exchange rates.

4 You can only hedge if someone who expects a price to move in the opposite direction is willing to buy or sell a contract.

5 Both parties can make money out of the same futures contract.

Look at some commodity prices, and decide if you think they will rise or fall over the next three months. Check in three months 1 time to see if you would have made or lost money by buying or selling futures.

Bloomberg

We’ve detected unusual activity from your computer network

To continue, please click the box below to let us know you’re not a robot.

Why did this happen?

Please make sure your browser supports JavaScript and cookies and that you are not blocking them from loading. For more information you can review our Terms of Service and Cookie Policy.

Need Help?

For inquiries related to this message please contact our support team and provide the reference ID below.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker!
    Perfect For Beginners!
    Free Trading Education!
    Free Demo Account!
    Sign-up Bonus:

  • Binomo
    Binomo

    Good Choice For Experienced Traders!

Like this post? Please share to your friends:
Best Binary Options Trading Guide For Beginners
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: