Index Rebalancing Should Boost Zinc_UBS
platts.com
The rebalancing of the Dow Jones AIG Commodity Index in January could see renewed buying of zinc, investment bank UBS said. The rebalancing of the index, which occurs on the fifth to the 10th business day of January, "will be a big event for the commodity market once again," UBS said, adding: "Broadly speaking, metals, notably zinc and nickel, will be bought and grains, especially wheat, sold."
The DJAIG rebalances once a year and usually sees large changes to its holdings; the index is designed to sell winners of the previous year and buy the last year's losers, and with most grains and some energy components the clear commodity winners in 2007, these commodities will be sold: underperforming metals will be bought, the bank said.
UBS suggested 100% in zinc holdings associated with the index, though it noted the percentage change was only an estimate as the final prices - and thus the relative performance - will not be known until early January next year. "At first glance, buying zinc futures equivalent to three times the LME stocks should be a clear positive, but it may not work that way," UBS said, noting that in January 2007 the rebalancing resulted in heavy selling of nickel and zinc, but this did not stop nickel from gaining more than 60% over the next few months. "Zinc, however, was hit by this selling and has remained a poor performer through the whole of the year.
Clearly market sentiment and supply/demand fundamentals are important determinants of the impact of the rebalancing," UBS said. "This year, nickel was wanted by the market and zinc shunned. The large, but telegraphed, buying of zinc futures that will occur early next year may not be too much of a boon for the metal if the physical market remains amply stocked and physical premia weak." |
