The ‘Sociable’ Metal that’s Quietly Soaring

You probably haven’t heard much about it.

But one metal is steadily moving higher.

It’s a ‘sociable’ metal with a wide range of uses.

Price wise, it just hit a 10 year high after a walloping 23% rise this month.

The metal is atomic number 30.

Or as its better known, zinc.

Unlike iron ore, this metal doesn’t attract the screaming headlines. But it’s an important metal all the same.

Its unique use as an alloy — particularly steel — means demand is highly correlated with iron ore.

A bit like nickel is too.

In fact, more than half of all zinc mined is used for galvanising other metals such as steel and iron.

Galvanising is when these other metals are coated with a thin coating of zinc in order to prevent them from corroding or rusting.

But zinc’s uses are pretty wide ranging.

It’s actually all around you.

In every cell of the human body, in the earth, in the food we eat and in the everyday products we use (sunblock, automobiles, cosmetics, airplanes, appliances, surgical tools, zinc lozenges).

Children need zinc for growth.

Adults need zinc for reproduction and good health.

But do you need zinc exposure in your portfolio?

I think you might.

And for a zany reason that probably won’t have ever crossed your mind!

I’ve also got a couple of stocks for you to check out.

First though, let’s look at the soaring zinc market…

If you look at the Zinc chart you can see it has recently broken out from an eight year side-ways channel:

Zinc Chart 27-10-17

Source: Incredible Charts

[Click to open new window]

Such moves are usually a good sign for you to pay attention.

It doesn’t mean the price has to go higher.

But it does mean the bulls are strong enough to overcome a fairly strong and long-standing resistance point.

Note the initial break followed by a retest to confirm it as well.

At these resistance points, traders and short sellers create significant downward pressure. So, the buying power to overcome it has to be pretty heavy.

And that makes it worth investigating.

As you’ll know, price is simply a function of supply and demand.

That’s how all markets work.

Let’s then start with the supply story. 

For much of the past decade, the metal was considered among the least attractive on the London Metals Exchange (LME).

Its supply is widely distributed among a large group of producers.  It has a tendency to occur geologically alongside other metals like lead, copper and silver.

Actually, only a few miners are solely dedicated to maintaining profitable supply and demand in zinc.

And output dipped severely last year, particularly after Glencore Plc cut output at its McArthur River and Mount Isa mines in Australia, in response to slumping prices in 2015.

Because of this, reserves of Zinc have dwindled to their lowest point in more than a decade.

But the demand side is beginning to surge.

A pre-Communist Party construction boom has boosted demand for most industrial metals, including zinc.

Any sustained rise in demand will require continued construction activity. Some aren’t so sure this will happen.

From Bloomberg:

Hindustan Zinc Ltd., a unit of billionaire Anil Agarwal’s Vedanta Ltd., has broken with its usual practice and hedged about a quarter of its annual metals production as prices trade near their highest level in years.

The company has locked in prices for 220,000 metric tons of zinc and 30,000 tons of lead, it said in an earnings statement on Monday.’

Maybe they’re just taking some risk off the table?

A prudent move perhaps?

But if demand continues, then it could also cost them potential profits.

I’ve talked previously about a potential infrastructure melt-up. This is the idea that a wave of infrastructure spending could be on its way in 2018.

But I’ve also just discovered another huge untapped potential source of demand. And I don’t think the market has factored it in yet…

Research from UK research company Technavio, suggests Zinc could also be set to ride the boom in big data.

As an analyst there explained:

One trend in the market is increasing use in semiconductor industry.

The growing demand for zinc oxide in the production of varistors, ferrites, and solar cells is expected to propel the growth of the global zinc oxide market in the forecast period (2017-2022).

Global sales of semiconductor reached more than $325 billion in 2016 and are expected to grow during the forecast period, which will drive the demand for zinc oxide.’

Smartphones, big data, artificial intelligence, cryptocurrency mining and emerging blockchain technologies, are all pushing demand in this sector.

Could it be a very unexpected double boost for zinc then?

An infrastructure and technology boom?

If it is, then near term Australian zinc producers Herron Resources Ltd [ASX:HRR] and Red River Resources Ltd [ASX:RVR] are two local companies worth investigating.

I think this is the kind of unexpected consequence that’s emerging from the infiltration of blockchain technology, into all areas of the economy.

That spells opportunity.

As someone once told me (I can’t for the life of me remember who), it’s the links between the charts that create the opportunities. Not the individual charts themselves.

And when two seemingly unique trends collide in unexpected ways, that’s how you find the big investment opportunities before the herd.

Good Investing,

Ryan Dinse,

Editor, Money Morning

PS: Junior zinc miners driven by a surge in big data? These are the kinds of strangely linked opportunities I specialise in looking for. And right now I think I’ve found a unique emerging trend that’s going to create big winners over the next few months and years. Read more here…

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:

Money Morning Australia