Hedge Fund Citrine Is Skeptical About the Year’s Best Metal

  • Citrine less confident that large zinc shortfall is looming
  • Aluminum is only market in deficit, says founder Paul Crone

One of the last surviving metals hedge funds is treating this year’s zinc frenzy with skepticism.

Zinc, up 49 percent this year, is the top-performer in a Bloomberg index of 22 commodities. The metal has rallied on speculation a deficit will appear after miners led by Glencore Plc cut output last year and some old mines closed. 

While some analysts see refined demand exceeding production this year, Citrine Capital Management LLC says the market remains in a slight surplus.

"We are less confident that there is a large deficit around the corner like so many are predicting,” Paul Crone, founder of Citrine, said in an interview last week. "And with production starting to come back at these high prices, we question whether the price has outpaced the true current fundamentals."

New York-based Citrine is one of the few surviving hedge funds investing exclusively in metals, alongside Red Kite Group. Crone is in London for LME Week, the annual metals industry get-together where supply agreements are discussed. Zinc supply will be one of the most hotly debated topics.

Citrine’s view on zinc contrasts with market expectations of a deeper deficit. Standard Chartered Plc and Bank of America Merrill Lynch are among banks predicting a shortfall in refined metal in 2017, and expect a rally to continue. 

Singular Aluminum

Zinc’s gains spurred Vedanta Resources Plc to speed up development of its Gamsberg mine in South Africa, and Nyrstar NV will restart its Middle Tennessee mines in the first quarter.

Citrine is convinced aluminum is the only metal on the London Metal Exchange that’s been in deficit this year, Crone said. Demand prospects, too, have been better than any other metal. Aluminum is up 14 percent this year and trading at a 16-month high after breaking through resistance at $1,700 a metric ton.

"The market is currently in a deficit," Crone said. "Until the Chinese capacity that so many people are focused on hits the market, the risk remains that we break this resistance and make new highs."

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