Zinc climbs as China steel prices surge to new peaks, shortage expected to persist

LONDON — Zinc prices clawed higher on Friday, getting a boost from another surge in Chinese steel prices and from investors who are still bullish about shortages of the metal developing.

Zinc pared gains, however, and other metals were pressured into negative territory after strong US jobs data sent the dollar to a one-week peak.

Chinese rebar steel futures jumped 4% to their highest in four years on Friday, reflecting firm demand for the building material in the world’s top consumer.

Zinc is often influenced by steel prices since its biggest use is for galvanizing steel.

Some investors have become wary about zinc’s bull story after Chinese output unexpectedly rose 17% month on month in June despite last year’s closures and suspensions in zinc mines, said analyst Vivienne Lloyd at Macquarie.

“That’s made people wonder whether the expectation of zinc cuts has been too optimistic and in fact the Chinese smelters are able to continue to produce at stronger levels than expected,” she said.

“We tend to think that one month’s print isn’t enough to ruin the bull story, but it has caught our attention… I think people today are looking at whether it has been carried down too far and are thinking about entry points.”

Benchmark zinc on the London Metal Exchange (LME) closed 0.70% up at $2,812 a ton after slipping 0.30% in the previous session.

US employers hired more workers than expected in July and raised their wages, signs of labor market tightness that likely clears the way for the Federal Reserve to announce a plan to start shrinking its massive bond portfolio.

The US dollar was on course for its biggest one- day gain against a basket of major rivals so far this year after a strong US July payrolls report and following comments about a new US tax plan. A firmer dollar weighs on commodities priced in the US currency, making them more expensive for buyers outside the United States.

LME aluminum finished down 0.30% at $1,910.50 a ton.

One analyst was not convinced that aluminum prices would see a further benefit from a crackdown by Chinese authorities on illegal or polluting aluminum smelters.

“While governmental interference poses the biggest upside risk given the world’s reliance on Chinese exports, we believe this is to a large extent already reflected in today’s prices,” Carsten Menke at Julius Baer said in a note.

“We remain of the opinion that oversupply should persist, pushing prices towards our 3and 12-month targets of $1,750 per ton.”

Three- month LME copper ended 0.30% firmer at $ 6,372 a ton, lead shed 0.30% to $ 2,361, nickel lost 1.30% to $ 10,250 and tin ended 0.70% weaker at $20,510. —