Hedge fund Citrine Picks Nickel as Best Base Metal Wager

Zinc and nickel will probably lead advances in base metals next year as global demand outstrips production, according to Paul Crone, chief investment officer at Citrine Capital Management LLC. Futures climbed.

Zinc may rally to $2,500 to $2,700 a metric ton, as much as 15 percent higher than last week, said Crone, who manages more than $200 million at the New York-based hedge fund and has traded metals for a quarter of a century. Nickel may rise 23 percent to $23,000 as Indonesia’s ban on raw ore exports cuts supply, Crone said in a phone interview on Aug. 21.

Nickel beat other base metals this year after Southeast Asia’s largest economy prohibited shipments, while zinc was the third-biggest gainer amid forecasts for a deeper shortage. The rallies in metals since the end of the first quarter, as broader commodity indexes declined, were helping to attract inflows into the fund, according to Crone, who said he plans to stop accepting money from new investors at $500 million.

“The market may get into a deficit by the middle of next year,” said Crone, referring to zinc, used to prevent steel from rusting. There’s a lack of new mines and also the planned closure of MMG Ltd.’s Century mine in Australia, he said.

Nickel rose 0.7 percent to $18,880 a ton on the London Metal Exchange at 7:36 p.m. in Singapore, taking gains this year to 36 percent. It last traded above $23,000 in August 2011. Zinc climbed 15 percent to $2,359 a ton this year, and last traded above $2,700 in January 2010.

Citrine’s Gains

Citrine Capital made a single-digit gain from January to July, mainly on bets on nickel and copper, said Crone. Commodity hedge funds averaged a return of 1.5 percent in the period, according to eVestment LLC, an Atlanta-based data firm.

Demand for zinc will exceed output by 117,000 tons this year, almost double the 2013 deficit, according to the Lisbon-based International Lead & Zinc Study Group. The shortage will expand to 300,000 tons next year and deficits will last to 2018, Morgan Stanley said in a report on July 8.

The Century mine will be closed next year, Melbourne-based MMG said on April 16. Vedanta Resources Plc’s Lisheen mine in Ireland will shut next financial year, Chief Executive Officer Tom Albanese said on a July 30 call with analysts.

The two mines account for about 4.5 percent of global supply and the closures will tighten the market from the second half of 2015, according to Goldman Sachs Group Inc. Prices may rise to $2,500 in 12 months as mine shutdowns in Western countries partially offset output gains in China and South America, analysts Roger Yuan and May Layton said July 31.

China Shipments

A surge in exports of refined zinc from top producer and consumer China may undermine price gains, according to Nic Brown, head of commodities research at Natixis in London. Overseas shipments rose last month to the highest level since April 2011 and may have reflected domestic demand that was not strong enough to absorb increased production, Brown said.

Indonesia, the largest mined nickel producer, halted shipments of ores this year to compel investments in processing. The global market will shift to a deficit of 97,100 tons next year from a surplus in 2014, according to Morgan Stanley.

“It’s very much a 100 percent Indonesia story,” said Crone. “Most people are calling for nickel to be at as high as $25,000, but I am not as bullish as that. Something more like $22,000 to $23,000, in that area.”

Stockpiles of nickel tracked by the London Metal Exchange rose 25 percent this year to the highest ever. The price rally was attracting producers to restart idled facilities, said OAO GMK Norilsk Nickel, the world’s largest supplier.

The LME Index of six industrial metals increased 9.9 percent since the end of March, compared with a 6.6 percent loss in the Bloomberg Commodity Index, which tracks 22 raw materials. Investors withdrew a net $2.45 billion from commodity hedge funds in the first seven months of this year, paring total assets under management to $74.24 billion, according to eVestment’s July report.

To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net Jake Lloyd-Smith, Sungwoo Park

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