Hermes Fund Managers Limited the pension fund manager with USD 1.6 billion in commodities, is betting against zinc as smelters in China will be encouraged to boost output to take advantage of higher prices.

Mr Joseph Murphy an analyst at Hermes said that “Stockpiles in bonded warehouses in China are rising. Money managers were the most bullish on zinc out of six main industrial metals on the London Metal Exchange as of August 1 with stockpiles in bourse-approved depots falling 26% this year.”

Mr Murphy said that “The market is seeing LME stocks drawing but is not appreciating that bonded are rising at the same time. There is a huge incentive for smelters to produce more. In the next few months, the fizzle will come off zinc.”

Zinc for delivery in three months declined 1.7% to USD 2,290.25 per tonne on the LME, trimming this year’s advance to 12%. Prices climbed the past four months, the longest streak since October 2010 amid expectations supplies will fall short of demand.

BNP Paribas SA said that the metal will average USD 2,205 per tonne this quarter and USD 2,270 per tonne in the Q4. Refined zinc demand will exceed supply by 250,000 tonnes in 2014 and 200,000 tonnes next year.

(Source - www.steelguru.com)