LONDON: Zinc prices slumped on Wednesday to their lowest in more than two months on a sharp rise in inventories that highlighted excess supply as demand falters in China.
Benchmark three-month zinc on the London Metal Exchange (LME) slid 2.7% to $2,584 a tonne by 1700 GMT, its lowest since Nov. 5.
Stocks in LME-registered warehouses have soared by 57% over the past two days to their highest since June 2017.
The sharp rise in inventories is likely to be the result of existing stocks moving into LME warehouses to take advantage of financial deals, said Citi analyst Oliver Nugent. “A lot of metal has been sitting at a combination of smelters and traders, so the stock was out there. This is pretty consistent with the view that there’s going to be a decent sized surplus this year,” he said.
Citi has forecast a market surplus of 70,000 tonnes this year.
“My suspicion is that we will bleed lower from here, but if we find ourselves in the $2,500s, that may look like something that is relatively cheap,” Nugent added.
The Chinese New Year holiday over Feb. 11-17 is also expected to curb demand in the world’s top metals consumer. “Due to the COVID-19 outbreak in Hebei province, restrictions to logistics are also expected to hurt demand, with the region accounting for roughly 10% of total galvanising capacity in China,” ING analysts said in a note,
Hebei is China’s steel-producing hub and one of the provinces hit hardest by the country’s most recent coronavirus outbreak.
Zinc, used mostly to galvanise steel, is now the worst performer year to date among base metals on both the LME and Shanghai Futures Exchange.
Copper prices are expected to retreat in the coming months as demand in top consumer China declines and supplies increase, a Reuters poll showed on Wednesday.
LME copper fell 2.4% to $7,820 a tonne, aluminium lost 1.3% to $1,993, nickel shed 0.9% to $17,900 and lead dropped 2% to $2,037.
Tin eased 0.4% to $22,770, erasing gains after touching its strongest since July 2014 at $22,940.
Comments
Comments are closed for this article.