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10/16/08

Before it was "Think Zinc", now it's "Sink Zinc"

Zinc has been my worst call this year. Period. I called it higher and it went lower. Got it wrong, wrong and three times wrong. Fact is that (and this may rub against the image that others may wish to create for themselves) we all get 'em wrong occasionally and the trick is always to limit the damage of one's own stupidity. In this case I managed to do that by noticing what reality was telling me and acting on it before I definitively changed my mind on the deeper fundamentals and saw where I'd gone wrong. Here's a chart:

So now that nobody is making money from the metal, what can we expect? Well the first thing to note is just how far Zn has fallen in the last few days; the suggests that the metal metal lead the stocks out, and it's going to have to lead by a long way. The metal will have to rebound nearly 40% before that $0.75/lb break even line is found.

The supply side is getting a lot tighter, and quickly too. Here's the link to a Reuters article yesterday that listed all the recent mine closures. The list is 13 names long, and started on July 14th. So at some point demand will beat out supply, especially (as I very much suspect) reports of China's sudden death have been greatly exaggerated.

The bottom line here is that there's still money to be made on a rebound, but that money should first be aimed at the metal and later the stocks.