Worries about shortages fuel zinc price to climb

LONDON — Zinc prices rose on Monday towards seven-month highs hit last month, on worries about shortages ahead of the seasonally strong demand in top consumer China and tumbling stocks.

Benchmark zinc on the London Metal Exchange (LME) ended up one percent at $2,738 a ton, from an earlier high at $2,778.50. Early last month prices of the metal used to galvanize steel touched $2,810, the highest since July.

“The market is worried about a shortfall, though supplies should be rising this year,” said Commerzbank analyst Daniel Briesemann.

“The other aspect is low stocks.”

Analysts expect the zinc market to see a deficit for the fourth year running in 2019. Zinc prices are up about 11% this year.

Data from the International Lead and Zinc Study Group (ILZSG) showed a zinc market deficit of 384,000 tons last year and shortfalls of 442,000 tons and 128,000 tons respectively in 2017 and 2016.

ILZSG data released on Monday showed the global zinc market deficit narrowed to 28,000 tons in January from a revised deficit of 62,400 tons in December.

China accounts for nearly half of global demand, estimated at around 14 million tons this year.

An environmental crackdown in the top producer led to its zinc output falling to 5.68 million tons last year, down 3.2% from 2017.

The second quarter is typically the strongest for industrial metals demand as companies stock up ahead of construction activity between July and September.

Inventories of zinc in LME approved warehouses at 59,450 tons are at the lowest since October 2007.

Worries about a tight LME market were exacerbated by large holdings of zinc warrants and cash contracts, pushing the premium for the cash over the three-month contract to above $40 a ton.

Some Japanese aluminum buyers have agreed to pay a premium of $105 per ton for shipments in April to June, reflecting higher local spot premiums, four sources directly involved in the pricing talks said.

Market focus is also on stocks of copper in LME warehouses, which at 113,525 are at their lowest since 2008. Concerns about a tight LME market have also created a premium for the cash over the three-month contract.

Copper closed up 0.2% at $6,407 a ton; aluminum fell 1.3% to $1,847; lead lost 0.8% to $2,075; tin slipped 1.5% to $21,050; and nickel also ended down 1.5% at $12,900. —