(Repeats with no changes to text. The opinions expressed here are those of the author, a columnist for Reuters.)
By Andy Home
LONDON, June 8 (Reuters) - What's up with zinc? Or maybe the question should be, what's down with zinc?
London Metal Exchange (LME) zinc was trading just shy of $3,000 per tonne as recently as late February. At one stage on Wednesday it hit a seven-month low of $2,427.50 and has since staged only a half-hearted recovery to $2,480.00.
All of the industrial metals have been hit by the chill coming off Beijing's attempts to cool an overheating shadow banking sector.
But zinc has been singled out for particular punishment. It is now the third worst year-to-date performer among the main LME-traded metals, besting only out-of-favour nickel and tin.
And this despite what appeared to be every fund's favourite narrative of a fast-approaching supply crunch.
The funds have beaten a major retreat from the London zinc market.
If you believe the LME's Commitments of Traders Report, fund net long positioning LME-ZS-MNET was cut by around 883,500 tonnes between February and mid-May. There was a slight rebuild over the back end of last month but the most recent figures, covering the week to June 2, showed net length sliding again.
If you believe LME broker Marex Spectron's different take on speculative positioning, funds have turned net short on zinc.
Have they lost faith or is the recent fall-back just a strategic retreat?
Graphic on fund positioning on LME zinc:
Graphic on zinc-lead relative value trade:
What has prompted the money men to reverse positioning on zinc?
There are as many strategies as there are funds but one or two key technical aspects of the recent market action are instructive.
The LME's figures show net fund length peaking on Feb. 14, one day after the benchmark three-month price had taken its second run at the $3,000 level.
This has long been a big-number target for bulls. This time last year there was bemused scepticism that someone had built up a long position on the $3,000 call option strike for June this year. Remember the price then was around $2,000.
Whoever had those options probably didn't do too badly, given zinc made its first attempt to get there in November last year with a high of $2,985.
The funds kept their faith at that stage but the second failed attempt on Feb. 13, when the bull charge ran aground at $2,980.50, seems to have persuaded many to cash in their chips and call it mission accomplished.
The fact that the price action had left a double-top on the charts would have whetted technical analysts' appetite for shorting zinc. The subsequent breach of a key uptrend line at $2,700 in early April even more so.
Compounding zinc's misfortunes has been its relationship with "sister metal" lead. At $610 per tonne on Feb. 22 the zinc premium was as wide as it had been in 2007.
Relative value traders, and there are many of them, have almost certainly been adding to the recent selling.
All of which is ironic because zinc's slow-fuse bull story is starting to fizz.
True, significant tonnages of metal are still appearing on warrant in LME warehouses in New Orleans, reinforcing the sense that off-market stocks remain a key known unknown in the bull story. The last surge, totalling 22,100 tonnes, took place at the start of May.
LME stocks are still trending lower, though, last at 324,325 tonnes, down by 24 percent since the start of the year.
The real action, however, is taking place in China.
Visible stocks registered with the Shanghai Futures Exchange (ShFE) have plummeted from almost 200,000 tonnes in March to 75,001 tonnes as of last Friday.
There seems to be a sticky front-month squeeze on the Shanghai market, the July contract trading at a consistent premium to the August contract for the last two weeks.
With several big local producers taking maintenance downtime, the arbitrage window for imports has opened.
April's imports of refined zinc at 47,500 tonnes were the strongest since March 2016.
My colleagues at Thomson Reuters GFMS suggest this metal "most likely came mainly from pre-existing stocks in Chinese bonded warehouse as the premium surged by 41 percent within the space of just two weeks". ("Base Metals Physical Trade/Arbitrage: May 2017")
More may be on its way to replace it with physical traders anticipating further inflows in the coming months.
All of which is written into the bull narrative.
China, the story goes, is going to be most acutely hit by the squeeze on raw materials, leading to stuttering domestic output of metal, leading to more imports.
So far, it would seem, so good.
Zinc is once again experiencing one of those disconnects between funds, fundamentals and technicals that we've seen before in this market.
Fund length has been massively reduced since that second spike towards $3,000 with many taking profits before other, more nimble systems started feeding on the resulting deterioration in the charts. That process is still continuing.
However, if the current bullish news flow from the physical market keeps running at this rate, it's hard to believe there's not going to be a reaction from the money men.
Back in June 2016 those $3,000 call options sitting on June 2017 were a mark of zinc bulls' ambitions.
It's interesting, therefore, to consider the lie of the call option landscape in December this year. <0#MZNZ7+>
There is market open interest all the way up to the $4,400 strike price, but the real stand-out in volume terms is the 1,800 lots (45,000 tonnes) resting at $3,500.
Not everyone, it seems, has given up on a zinc comeback.
Editing by Edmund Blair