Zinc at highest in nearly three months amid growing inventory concerns

LONDON — Zinc hit its highest in nearly three months on Monday as the market fretted about shortages, dwindling stocks and expectations of strong demand from top consumer China.

Benchmark zinc on the London Metal Exchange ( LME) closed up 1.80% at $2,805 a ton, having touched $ 2,805.50, its highest since April 6. Prices of the metal, used to galvanize steel, are up more than 10% since June 7.

“Zinc is in a strong position. The concentrate deficit from last year has moved downstream into an ingot deficit,” said Macquarie analyst Vivienne Lloyd.

“Stocks are falling and Chinese smelters have been forced to cut output because of a lack of feed (concentrate).”

Macquarie expects a 650,000 ton zinc shortfall this year and sees prices breaching $ 3,000 a ton by the fourth quarter.

Societe Generale’s Robin Bhar is not so bullish and expects a deficit of about 250,000 tons this year.

Zinc stocks in LME-approved warehouses at 289,275 are down more than 30% this year, while those monitored by the Shanghai Futures Exchange have tumbled nearly 60% to less than 65,000 tons.

A tighter LME market is exacerbated by canceled warrant — metal earmarked for delivery and so no longer available — at more than 75%.

Worries about nearby shortages have narrowed the discount for cash over the three- month contract to near zero from $20 a ton last month.

China accounts for nearly half of global zinc demand estimated at about 15 million tons this year.

The country’s zinc output in May fell by 9.90% to 481,000 tons, which has contributed to consumers drawing down stocks.

Industrial metals were generally supported by data showing June factory activity and new orders growing at their fastest pace in three months.

A survey showing a jump in US factory activity in June also boosted sentiment after the New York open. The US accounts for nearly 10% of global demand for copper, aluminum, zinc, tin and nickel.

Traders expect strong resistance at $ 2,900, near March highs, and then the February peak of $2,980. Trendline support is a distance away at about $2,700.

A lower US currency this year has helped to underpin base metals prices because it makes dollardenominated products cheaper for non- US buyers, potentially boosting demand. The dollar index is down more than 6% since January.

Copper traded down 0.10% at $5,930 a ton, under pressure from LME stocks that have gained 14% since Wednesday to hit 278,275 tons.

Aluminum rose by 0.40% to $1,927, lead was up 2% at $2,337, tin added 0.70% to $20,150 and nickel gained 0.10% to $9,390. —