Zinc touches 15-month high; gains shortlived with absence of fresh suspensions

LONDON — Zinc hit its highest in 15 months on Friday as bearish speculators scrambled to close out positions, though some investors doubted that the hefty gains were entirely justified.

Volumes were huge, with zinc turnover on the London Metal Exchange (LME) of over 17,000 lots, more than double the activity in aluminum, one of the most active contracts.

“Shorts had been building up recently because people were expecting a setback lower, but when stops were triggered, that forced the shorts to cover,” said Gianclaudio Torlizzi, Partner at the TCommodity consultancy in Milan.

LME zinc rallied to its highest since May 2015 at $2,333 a ton before retreating. Zinc, used to rust-proof steel, failed to trade in closing open outcry activity but was bid up 0.70% to $2,314, taking this year’s gains to 44%.

Mr. Torlizzi said the surge might be the last gasp before the market turns lower, which could send prices sliding to about $2,000.

“We’re sceptical about the sustainability of this move because the current price of zinc is not justified. We haven’t seen any tightening in the refined market, only in concentrates.”

Koen Straetmans, senior strategist at NN Investment Partners in the Netherlands, was also wary.

“Zinc has been a star performer and I had a position, but closed it. I think that obviously there is still an inventory overhang and, given where it trades, it might fall back.”

LME zinc inventories are still relatively high at 454,175 tons.

The jump in zinc occurred during Asian trading after state media said that China plans to cut steel production by 2.91 million tons in inner Mongolia this year.

As China steel mills wind down, steel prices lift, meaning the remaining mills can pay more for ingredients such as zinc.

Other metals ended mixed. LME copper ended down 0.20% at $ 4,615 a ton, having closed little changed in the previous session when it fell to its weakest since June 24 at $4,620 a ton.

Copper seemed to shrug off another rise in LME inventories, which climbed 7,700 tons on Friday, bringing the increase over the past two weeks to nearly 70,000 tons.

LME nickel dipped 0.50% to $ 9,800 a ton, bringing it down by about 5% over the week for its biggest weekly drop since March.

Lower Chinese imports and an absence of fresh mine suspensions in the Philippines have eroded risk premiums that drove prices to their highest in a year this month.

Aluminum closed 0.10% down at $1,642.50. Lead finished 0.70% up at $ 1,875 while tin firmed 0.80% to $18,890, its highest since February 2015. —