Zinc stronger on supply shortage, copper inventories down 15 percent

Zinc rose to its highest level in three weeks on Monday as the dollar fell and on expectations of a continued shortage in supply for the metal used to galvanise steel. Zinc, the best performing LME metal, rose 60 percent in 2016 fuelled by fears of shortages after some major mines were closed or suspended. This also means the annual commodity index rebalancing this week could pressure LME zinc.
The metal on the LME ended 1.8 percent higher to $2,667 per ounce, a level last seen on December 19. "Its been a good run for zinc but at the same time we are also seeing some zinc mines restart, so its question of sentiment from the indices," ING's head of commodities strategy Hamza Khan said, referring to the possibility of Glencore restarting its mines.
Supporting base metals was also a weaker dollar, which fell 0.3 percent, after a US Federal Reserve official called for faster interest rate increases. Barclays said in a note it expected tightness in the zinc market to "remain supportive as concentrate shortages could lead to smelter outages outside China".
J.P. Morgan expects the zinc bull rally to extend into the first half of this year and said any declines in prices would be short term as it would be outpaced by its "strong fundamentals story". The bank also said it has lowered its expectations of an announcement of mine restarts from Glencore. Glencore's CEO said in December zinc capacity would stay shut until market conditions meant the extra supply would not push the market lower.
Among other metals, copper closed flat at $5,591 per tonne. Last Thursday, copper prices hit their highest in more than two weeks at $5,698 a tonne. Disruptions could come as soon as this week with a ban on ore exports from Indonesia set to come into effect, although miner Freeport is in talks with the government to continue exports as it constructs a new smelter. Aluminium rose 0.8 percent at $1,727 a tonne, not far off a two-month low hit last week. Lead closed 2.6 percent at $2,108 per tonne, and nickel rose 1.4 percent to $10,390 a tonne while tin added 0.5 percent at $21,120.