Shanghai zinc surges 4% on concerns about supply

MELBOURNE — Shanghai zinc surged four percent to its highest in nearly a decade on Monday, lifted by supply concerns as well as expectations for improved liquidity in markets in China, the world’s top metals consumer.

Returning from a week of holidays, markets broadly welcomed a move by China’s central bank to lower reserve rate requirements for some banks that meet certain requirements for lending to small business and the farm sectors.

“Overall the (metals) complex has held up well,” Marex Spectron head of Asian institutional sales Matt France wrote in a report.

France said that a reversal in steel prices later in the day could drag down metals. Zinc and nickel in particular, inputs to the galvanized and stainless steel sectors, tend to track steel prices.

“But overall it does feel like the structure is intact so bigger dips should be ( bought) for now.”

Shanghai Futures Exchange (ShFE) zinc rallied by 4% to hit its most expensive since March 2008 at 26,935 yuan ($4,048) a ton before paring gains to 3.40% by 0554 GMT.

Concerns about dwindling supply have lit a fire under prices as the closure of several giant mines last year has crimped production of refined metal. In China, ShFE zinc stocks are the lowest since early 2009, just under 65,000 tons.

On the London Metal Exchange ( LME), zinc prices climbed by one percent to $3,268 a ton. LME prices, which have climbed by 27% so far this year, last week hit $3,308.75 which was the loftiest since August 2007.

LME zinc cash to three month spreads are also showing the most stress in a decade, with LME cash prices more than $65 above the benchmark contract several times in the past month.

Elsewhere, LME copper edged up by 0.10% to $6,675 a ton, while ShFE copper rose by 1.70% to 52,110 yuan ($7,855) a ton. LME nickel rose by 2% alongside higher prices for steel.

Potentially capping metals prices for the session, China service sector activity grew at its slowest pace in 21 months in September as the pace of new business cooled, a private survey showed.

Columbus Day in the US and a public holiday in Japan thinned out trading volumes even as Chinese markets reopened.

Hedge funds and money managers reduced net long positions in COMEX copper futures and options for the fourth straight week, in the week to Oct. 3, US Commodity Futures Trading Commission data showed. —