Shrinking LME stocks push zinc prices to 8-month high

  • Benchmark zinc climbed to its highest since July, at $2,848.58 per tonne
  • Copper was slightly lower at $6,465 a tonne, aluminium added 1.8% to $1,904, lead rose 1.3% to $2,111

London: Zinc prices held close to an eight-month high on Wednesday as sinking stocks of the metal on the London Metal Exchange (LME) market fuelled supply concerns even as inventories grew elsewhere.

Inventories of zinc in warehouses certified by the LME touched 58,950 tonnes, their lowest since October 2007.

This boosted the premium for cash zinc over the three-month LME contract to $52 per tonne on Tuesday, its highest on 8 January.

"Tightness on the LME seems to be playing into higher prices even though there is a reasonable amount of stock in China which suggest that the global market is not as tight as the LME is," said Capital Economics analyst Ross Strachan.

Benchmark zinc climbed to its highest since July, at $2,848.58 per tonne, but by 1140 GMT had eased 0.4% to $2,827 as investors booked some profits from the rally.

The metal is the second best performing base metal this year, up 15% after shedding 26% in 2018.

China stocks: Zinc stocks in warehouses monitored by ShFE are above 117,000 tonnes, according to latest data. That, combined with more than 82,000 tonnes in Shanghai bonded warehouses, takes the total to near 200,000 tonnes.

Positions: LME broker Marex Spectron estimates speculators held a collective net long of 5% of open interest last Friday from 9.3% in early February.

Balance: The global zinc market deficit narrowed to 28,000 tonnes in January from a revised deficit of 62,400 tonnes in December, data from the International Lead and Zinc Study Group (ILZSG) showed.

Zinc smelters have not been able to keep up with higher output from mines, constraining production of refined metal.

Dominant position: Zinc prices have also been bolstered by the large position held by one party, which controls 50-79% of available LME zinc inventories, according to LME data.

Supply: Floods in Australia's Queensland state last month have disrupted rail delivery of zinc exports to the northern port of Townsville, affecting miners, including Glencore , MMG Ltd and South 32.

China VAT: China's metal traders are betting that recently announced manufacturing tax cuts will start in May and are placing trades that pay off as prices diverge between the April and May contracts.

Trade: The United States and China may be in the final weeks of discussions to hammer out a deal to ease their tit-for-tat tariffs dispute, US Trade Representative Robert Lighthizer said on Tuesday.

Rusal: Russian aluminium producer Rusal plans to launch the second line of its Boguchansk aluminium smelter in Siberia at the end of this month.

Other metals: Copper was slightly lower at $6,465 a tonne, aluminium added 1.8% to $1,904, lead rose 1.3% to $2,111, tin eased 0.7% to $21,175 while nickel fell 0.8% to $13,005.