Falling stocks, deficits fuel zinc’s rally to 2007 level

LONDON — Zinc prices hit their highest in more than a decade on Tuesday as investors anticipating another year of shortages and falling inventories bought the metal used to galvanize steel.

Traders said funds taking profits on long positions — bets on higher prices — weighed on prices of industrial metals after New York opened.

Benchmark zinc ended down 1.50% at $ 3,335 a ton from an earlier $ 3,400, its highest since August 2007. Zinc gained more than 28% last year after climbing 60% in 2016.

“Prices will stay elevated because we have a market deficit that requires inventory drawdown,” said Societe Generale analyst Robin Bhar, adding that new supply from some smaller mines in Canada and Australia would not be enough to balance the market. “New supply and demand destruction due to zinc substitution will eventually rebalance the market, but that could take months, if not years.”

Societe Generale expects the zinc market deficit at 350,000 tons last year and this year after a deficit of 200,000 in 2016. It sees world refined metal production to rise to 14 million tons this year from 13.80 million in 2017.

China accounts for nearly half of global zinc demand. The country’s war on smog cut local output of zinc last year and is expected to cut supplies again this year.

China’s zinc imports jumped to above 573,000 tons in the first 11 months of last year, up 43% from the same period of the previous year.

Shortages have led to a drawdown of inventories in London Metal Exchange (LME)-approved warehouses, which at 180,250 tons are down more than 30% since last October. Stocks in warehouses monitored by the Shanghai Futures Exchange at 77,383 tons are down 60% since March last year.

Worries about a tight LME market have been reinforced by two large positions holding between 30% and 39% of zinc warrants and cash contracts.

Jitters about a shortfall on the LME market has since Dec. 27 seen the cash contract trade at a premium over the three-month contract. The premium was trading around $15 a ton on Tuesday.

Copper, aluminum, lead and nickel all ended 2017 higher by around 30% on expectations of market deficits and falling inventories this year. Analysts expect another year of higher prices.

Copper was down 0.30% at $7,101, aluminum slid one percent to $ 2,152.50, lead fell 2.30% to $2,545, tin lost 0.30% to $19,950 and nickel gained 1.30% to $12,695. —