Supply fears propel zinc to three-week highs

LONDON: Zinc prices touched a three-week peak on Wednesday, helped by concerns over supply shortages while an improving technical picture provided encouragement for buyers.

Benchmark zinc on the London Metal Exchange (LME) did not trade but was bid up 1.2 percent at $2,700 a tonne in official rings after reaching its highest since Oct. 2.

The metal used to galvanise steel has risen 18 percent from a 22-month low in August, outperforming other industrial metals.

“The driver is tightness in the market,” said Societe Generale analyst Robin Bhar, pointing to a large supply deficit, elevated prices for cash metal and falling exchange stockpiles.

“Although we are getting new mine supply, we don’t see the refined market balancing for a few more years.”

ZINC STOCKS: On-warrant zinc stocks in LME-registered warehouses — metal available to the market — have fallen below 100,000 tonnes from almost 240,000 tonnes in August and are close to 10-year lows.

SPREAD: The premium for cash zinc over the three-month LME contract, at $53, remains close to Monday’s $63 one-year high, signalling tight nearby supply.

TECHNICALS: “The technical picture (for zinc) is brightening after the price appears to have successfully exceeded the 100-day moving average, encouraging further buyers to jump on the bandwagon,” Commerzbank analysts said.

DEFICIT: The global zinc market had a deficit of 292,000 tonnes in the first eight months of the year, data from the International Lead and Zinc Study Group (ILZSG) showed. In August the deficit was 76,200 tonnes.

CHINA OUTPUT: Chinese zinc production in September was down 10.1 percent year-on-year at 456,000 tonnes amid a crackdown on polluting industry.

China accounts for nearly half of global refined zinc production of about 13.5 million tonnes. It is also the largest consumer of the metal.

CHINA STIMULUS: China more than quadrupled the value of fixed-asset investment projects approved in the third quarter from the April-June period, as part of efforts to prop up the slowing economy.

DOLLAR: A stronger dollar put the brakes on price gains by making metals more expensive for buyers with other currencies.

ANTOFAGASTA: Chile’s Antofagasta revised its full-year copper production guidance to 705,000-725,000 tonnes from 705,000-740,000 tonnes.

NORSK HYDRO: The CEO of Norway’s Norsk Hydro said he expects  a deficit in the aluminium market next year and is uncertain when an alumina plant in Brazil would resume full production.

PRICES: LME copper traded up 0.3 percent at $6,212 a tonne, aluminium was bid 0.1 percent higher at $2,003, lead was bid up 0.2 percent at $2,020, nickel was bid up 0.1 percent at $12,385 and tin traded 0.2 percent higher at $19,330.

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