Zinc surges as supply deficit erodes stockpiles

LONDON — Zinc prices rose on Tuesday towards last week’s three-month high as falling stockpiles underlined a global supply shortage.

Benchmark zinc on the London Metal Exchange (LME) closed up 2.4% at $2,678 a ton.

The metal used to galvanize steel has surged by more than 17% from August’s 22-month low of $2,283 and is close to a $2,706.94 peak reached on Oct. 2.

But the rally is likely to be short-lived, said Capital Economics analyst Caroline Bain.

“The market does look a bit tighter currently, but over the next three months we see the supply picture improving,” she said, predicting prices at $2,300 at the end of next year.

Zinc inventories in LMEregistered warehouses fell below 200,000 tons from more than 250,000 tons in August and are nearing 10-year lows.

Stockpiles in Shanghai Futures Exchange storehouses are at 29,204 tons, the lowest since 2007.

The premium of cash zinc over the three-month contract rose to $41.50, reversing recent falls and signalling a lack of nearby supply.

Zinc was struggling to break above its 100-day moving average at $2,685.

Demand for refined zinc will exceed supply by 322,000 tons this year and 72,000 tons in 2019, the International Lead and Zinc Study Group said on Monday.

Production cutbacks at China’s zinc smelters in response to tighter environmental checks and weaker profits have tightened supply, said CRU analyst Dina Yu in Beijing. China accounts for nearly half of global refined zinc production of about 13.5 million tons. It is also the largest consumer of the metal.

A mixture of rising mine output, reduced pressure on polluting Chinese industry to close during the winter period and a weakening of Chinese economic growth is likely to ease the supply situation, said Capital Economics analyst Bain.

The International Monetary Fund cut China’s 2019 growth forecast to 6.2% from 6.4%, leaving the 2018 forecast unchanged at 6.6%. Lower growth implies weaker demand for metals. It also reduced its global economic growth forecasts for 2018 and 2019 to 3.7% from 3.9% for both years.

LME aluminum ended 0.6% down at $2,055 a ton, falling for a fourth day.

Copper closed up 1.8% at $6,292; lead fell 1.8% to $1,936; tin did not trade but was bid 0.4% higher at $18,980; and nickel finished up 3.5% at $13,015. —