Deficits on the horizon drive zinc to 10-year peak

LONDON — Zinc scaled 10-year peaks on Tuesday as the market focused on looming deficits due to falling supplies, but gains were capped as prices are at levels which are likely to encourage investment in new output.

Benchmark zinc ended up 0.90% at $ 3,349 a ton from an earlier $ 3,352, its highest since August 2007, before the financial crisis hit demand for the metal used to galvanize steel.

“Demand growth is decent, but not spectacular from a historical perspective, which tells me this is once again a supply side issue,” said Bernstein analyst Paul Gait.

“Years of under- investment have caught up. We could see a further price acceleration in the short term, but current levels should generate suff icient capital inflows to generate new supply to meet demand.”

Zinc imports by the world’s largest consumer jumped to above 573,000 tons in the first 11 months of last year, up 43% from the same period of the previous year. China’s war on smog cut local output of zinc last year and is expected to again cut supplies in 2018.

Shortages have led to a drawdown of inventories in London Metal Exchange (LME)-approved warehouses, which at 180,975 tons are down 70% since September 2015. Stocks in warehouses monitored by the Shanghai Futures Exchange at 68,630 tons are down 65% since March last year.

Jitters about a shortfall on the LME market pushed the premium for the cash over the threemonth contract to $24 a ton, its highest since Nov. 27.

Traders are watching a large position holding between 30-39% of zinc stocks and cash contracts on the LME system.

Trendline support comes in around $3,280, while strong resistance is at $3,570, the high from August 2007 and the upper 30day Bollinger band.

Overall, base metals were supported by a lower US currency, which when it falls makes dollardenominated commodities cheaper for non-US firms.

Optimism about Chinese demand was boosted by an unexpected December rise in manufacturing and a pick up in new orders. But higher prices for raw materials and firms cutting staff have fueled concerns about growth. “The PMIs (Purchasing Managers’ Index) ended 2017 on a strong note,” Capital Economics analysts said in a note. “But if the past couple of quarters are any guide, this may not translate into an improvement in the hard data.”

Copper slipped 0.60% to $7,206 a ton, aluminum fell 0.10% to $ 2,264.50, lead rose 3.30% to $ 2,570, tin gained 0.10% to $20,040 and nickel slipped 1.10% to $12,620. —