LONDON: Zinc prices fell more than 2 percent on Tuesday as a big inflow into London Metal Exchange (LME) warehouses fanned expectations that a supply deficit will soon end.
Benchmark zinc on the LME traded down 2.3 percent at $2,832 a tonne in official rings after hitting a three-week low.
The metal used chiefly to galvanise steel has risen around 15 percent this year thanks to a supply shortfall that drove LME inventories to record lows. Prices reached a 9-1/2-month high of $2,958 a tonne on April 4.
However, analysts expect a recent rise in mined zinc production to feed through to the refined metal market from the second quarter of this year.
This increase in supply will drag prices down to around $2,300 by the year-end, Capital Economics analyst Ross Strachan said. He said zinc would perform worse than other industrial metals.
ZINC STOCKS: Headline zinc stocks in LME-registered warehouses jumped by 10,350 tonnes to 66,475 tonnes, rising from a record low of around 50,000 tonnes earlier this month.
Stocks in warehouses monitored by the Shanghai Futures Exchange rose sharply during a seasonal lull in Chinese manufacturing in the first quarter, but have slipped in recent weeks to 101,000 tonnes.
ZINC SPREAD: The premium of cash zinc over the three-month contract on the LME fell to $79 from more than $100 on Friday, but remains far above usual levels, pointing to a shortage of immediately available metal. <MZN0-3>
WARRANTS: Two entities each held between 40 and 49 percent of LME zinc warrants, exacerbating worries over availability. <0#LME-WHL>
CHINA ECONOMY: Positive economic data in China, the largest consumer of metals, has supported the demand outlook.
China's fiscal spending increased 15 percent during January-March from levels a year earlier and local governments quickened bond issuance for key projects, the finance ministry said on Tuesday.
Data showing new home prices in China grew slightly faster in March came on the heels of figures on Friday that showed China's new bank loans rebounded last month far more than expected.
CHINA OUTLOOK: The OECD, however, said on Tuesday that China's stimulus will shore up economic growth this year and next but may undermine the country's drive to control debt and worsen structural distortions over the medium term.
COLUMN: Funds are holding their fire on a confused copper market, writes Reuters columnist Andy Home.
OTHER METALS: LME aluminium traded down 0.5 percent at $1,856, nickel traded 0.6 percent higher at $13,070, lead rose 0.4 percent to $1,961 and tin slipped 0.1 percent to $20,550.
Copper did not trade in official rings but was bid up 0.1 percent at $6,485 a tonne.